RBI Monetary Policy: Giving a hint at the economic recovery, the Reserve Bank of India announced the policy decision of the monetary policy committee on Friday, but kept the repo rate, the key interest rate at which it lends to commercial banks, unchanged at 4%.

Also Read: World Bank Predicts Sharper Cut In India's FY21 GDP, Estimates 9.2% Decline Vs 3.2% In June

The committee has started the three-day deliberations on Wednesday, and it is the first meeting of the new MPC which was formed after the appointment of eminent economists comprising of Jayant Verma, Ashima Goyal and Shashanka Bhide.

The policy announcement comes after the vacancies of three external members in the committee were filled on Monday.

The RBI had to postpone the three-day MPC meeting from 29 September to this week as vacancies for three external members could not be filled, after the tenure of Ravindra Dholakia, Pami Dua and Chetan Ghate ended in September.

The decision on repo rate is based on the inflation that has remained above 6%, the higher end of the central bank’s medium-term target. While announcing the key decisions, Governor Shaktikanta Das said the stance of the RBI will continue to be accommodative in this financial year, at least while ensuring the inflation remains within the 4% plus/minus 2% target.

Monetary Policy Committee has voted unanimously to keep repo rate unchanged in its policy review. It was expected that the central bank will maintain status quo on the benchmark lending rates in view of the inflation.

GDP rate may move into positive by Q4.  With the migrant labourers returning back, traffic intensity increasing and online commerce rising rapidly, there are signs are economic revival.

Here are other key points that you need to know:

  • The governor also said the consumer confidence is also showing up as the overall business situation has improved while global economy is expected to rebound in the third quarter.

  • He added that the country’s “focus must shift from containment to revival".

  • India’s headline inflation based on consumer price index (CPI) fell marginally to 6.69% in August from 6.73% in July, ruling out the possibility of a repo rate cut in near term. CPI inflation was at 3.28% in August 2019. The MPC aims to keep the retail inflation at 4% within a band of +/- 2% in the medium-term through its policy rate changes.

  • RBI will allow banks to increase exposure to retail and small borrowers up to Rs 7.5 crore. The central bank is also rationalising risk weights for all new housing loans till March 31, 2022 and extending scheme for co-lending to all non-banking financial companies (NBFCs) and housing finance companies (HFCs).

  • Gross Domestic Product (GDP) is seen contracting by 9.5 percent in FY21 amid economic disruptions caused by the pandemic. It may turn positive by Q4 amid some economic recovery.