Data for third quarter of 2020-21 confirm that economy is recuperating faster than anticipated, more sectors joining multi-speed upturn.
Our Bureau
New Delhi
The Reserve Bank of India (RBI) governor Shaktikanta Das on Friday said that the Indian economy was recovering faster than expected from the slump created by the Covid-19 pandemic and raised gross domestic product (GDP) projection for financial year 2021 to (-)7.5 per cent from (-)9.5 per cent earlier.
Announcing the decisions taken by the central bank’s monetary policy committee (MPC), Das said the accommodative stance of monetary policy will continue as long as necessary, to revive growth and mitigate impact of Covid-19.
Data for Q3 of 2020-21 confirm that economy is recuperating faster than anticipated, more sectors joining multi-speed upturn
The Reserve Bank of India (RBI) governor also announced a status quo on the interest rate, forecast a lower GDP (gross domestic product) contraction for the second half and sharply raised inflation projections. The policy is expected to push growth as it sends a signal that rates have bottomed but funds would be available at current rates for next few quarters.
Markets were cheered by the central bank’s decision to ignore inflation to nurture growth. Das said that the stance of the policy was to be accommodative in terms of liquidity until FY21 as the signs of recovery are far from being broad-based.
All the six members of the MPC (monetary policy committee) voted unanimously to keep RBI’s key lending rate to banks or the repo rate at 4%. The reverse repo rate, or the rate it offers banks for their surplus funds, stayed at 3.35%.
Banks have said that interest rates will not go down further for borrowers as deposits growth has slowed down and credit growth is slowly returning. The governor did not give any indication that there was space for further rate cuts like he did in the past.
“Data shows the economy is recuperating faster than expected. The contraction in Q2 was shallower than expected. The positive outlook is clouded by a rise in infection in some parts of the country. Taking these factors into consideration, the real GDP for FY21 is projected at -7.5%. For Q3 at 0.1% and 0.7% for Q4 and 21.9% to 6.5% in H1:2021-22, with risks broadly balanced.,” said Das
Equity indices finished higher on Friday with the benchmark BSE Sensex breaching the 45,000-mark for first time ever, led by gains in banking, financial and FMCG stocks, after the Reserve Bank of India (RBI) said that the Indian economy was recovering faster than expected.
After scaling an all-time high of 45,128, the 30-share BSE index surged 447 points or 1 per cent to close at fresh peak of 45,080; while, the broader NSE Nifty settled 125 points or 0.95 per cent higher at 13,259.
On the NSE platform, all sub-indices finished in green with Nifty Bank, Private Bank, FMCG and Metal gaining as much as 2.05 per cent.
Taking positive steps for growth
- The key lending rate of the RBI or the repo rate was left unchanged at 4 per cent while the reverse repo rate or the key borrowing rate stayed at 3.35 per cent.
- RBI expects GDP to contract by 7.5 per cent for the current year as against a contraction of 9.5 per cent projected in previous MPC meet.
- Core inflation remains sticky; CPI inflation projected at 6.8 per cent in Q3 and 5.8 per cent in Q4.
- Limit for contactless card transaction to be raised from Rs 2,000 to Rs 5,000 per transaction from January 2021
- The RTGS system will soon be made 24×7 in next few days as announced in last MPC meet.
- Marginal standing facility and bank rate remains unchanged at 4.25 per cent.
- Commercial, cooperative banks to retain profit made in 2019-20; not to make any dividend payment
- The central bank will review the guidelines on credit default swaps to facilitate the development of the credit derivatives market. It will soon issue draft directions for public comments in this regard.
- RBI has asked scheduled commercial banks and co-operative banks not to make any dividends for the financial year ended March 2020.
- In view of the ongoing stress and the heightened uncertainty on account of the pandemic, RBI said it is imperative that banks continue to conserve capital to support the economy and absorb losses, if any.
- Efforts are underway to ensure a calibrated unlocking of the economy, with cognizance and caution about the virus.
