In its first policy review after Budget 2020, the Reserve Bank of India stuck to the repo rate of 5.15% and didn’t change it as was hoped for by several observers who assumed a further cut would have increased liquidity further. Speaking to the media, RBI Governor Shaktikanta Das said the central bank’s decision to be patient on further repo rate revision was in anticipation of seeing indicators prop up on the growth rate. The growth rate for the 2020-21 financial year was pegged at 6% with a slightly better forecast of 6.2% in the 3rd quarter in which major festivals fall.
Das said inflation should also stay within target and is expecting the high of 6.5% in the first quarter of this calendar year to fall by at least a full 1% in the next six months and further by 2% in the October-December 2020 quarter. On monetary policy, he said all committee members voted in favour of maintaining the status quo since the combined output in the economy was lagging when compared to the previous years.
Ahead of the budget, a Reuters poll had expected the RBI to continue with the existing repo rate until demand saw a spike.
As the monsoon in North, West and South India is expected to register a change in the coming year, the RBI has kept the CPI inflation to 6.5%.
Das said the Indian economy is expected to turn the corner and return to its growth trajectory by March 2021. According to the findings of a private survey, manufacturing activity expanded at its quickest pace in nearly eight years in January. The central bank said the measures on rural economy and infrastructure announced in the Union Budget should help the growth momentum ahead. The Budget, apart from the introduction of the much publicised new tax regime, has also allocated funds for infrastructure, agriculture and other core sectors. The hope of a better monsoon will answer many prayers in the coming year.