InvestorQ : What were the key highlights of the monetary policy announced by the RBI on 09 October 2020?
Lavanya Subramanian made post

What were the key highlights of the monetary policy announced by the RBI on 09 October 2020?

Anamika Sodhani answered.
3 years ago

The Monetary Policy Committee or MPC today announced the monetary policy, largely along expected lines. Here are some key features.

· The MPC opted to keep the status quo on repo rates and held them at 4%. As a result, the reverse repo stayed at 3.35% and the bank rate at 4.25%.

· The MPC maintained the stance of the monetary policy as accommodative, as it has done in previous policies. The only difference was that it added the words “as long as required till durable growth is back”.

· This basically implies that through 2020 and better part of 2021, the accommodative stance of the RBI will continue. Hence any rate hikes, irrespective of fiscal deficit spike and yield spikes, are unlikely to happen.

· The MPC refrained from cutting rates further as the inflation has stayed above 6.5% in this quarter and they would prefer to wait to examine the impact of the Kharif production on food inflation before taking a view.

· The RBI continues to be pessimistic about GDP growth and expects the GDP to contract to -9.5% for the full financial year FY21. However, MPC does expect the GDP growth to bounce back to +20% in fiscal year 2022.

· The RBI also expects that the huge influx of liquidity into the banking system after March should be instrumental in forcing better transmission of rate cuts to the end customers making their previous rate cuts automatically more effective.

· In other developments, the RBI opted to extent RTGS facilities round the clock and on all days. It may be recollected that NEFT had been given a similar extension in the previous year, making India among the few countries offering this facility.

· The RBI will also conduct TLTRO up to Rs.1 trillion to keep the liquidity and the maturity wise yields in tandem. The RBI will also do repos in State Development Loans or SDLs to encourage better pricing and liquidity in state loans.

· Finally, the risk weight on home loans has been tweaked to make it more attractive to real-estate players.