Shaktikanta Das-Led RBI To Announce Policy Decision Today

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RBI Governor Shaktikanta Das-led Monetary Policy Committee will today reveal its policy decision at the end of talks that began on Wednesday. Most economists expect the central bank to keep policy rates at existing levels as inflation has remained above its comfort zone for five straight months, amid a jump in food prices, despite strategic removal of COVID-19-related restrictions. The RBI’s six-member panel has three new external members, whose delayed appointment by the government had forced the central bank to delay its bi-monthly review originally scheduled for September 29-October 1.

  1. When Governor Shaktikanta Das addresses the media at 10 am today, all eyes will be on any hints of further monetary easing in the coming months, at a time when global financial markets are divided over the prospect of further stimulus to support economies against COVID-19. 
  2. The RBI is expected to maintain the repo rate at the existing 4 per cent, according to all 66 respondents in a poll by news agency Reuters. A large majority in that poll sees no cuts until the fourth quarter (January-March) of current financial year.
  3. The central bank has, since late March, slashed rates by 115 basis points in response to the COVID-19 pandemic. However, it is expected – for the first time since February – to give guidance on economic performance amid the still-spreading coronavirus pandemic and also provide outlook on inflation as well as growth.
  4. New members in the Monetary Policy Committee – who will be part of today’s decisions – are Ashima Goyal, a member of PM Narendra Modi’s economic advisory council, Shashanka Bhide, a senior advisor at think-tank National Council for Applied Economic Research, and Jayanth Varma, a finance and accounting professor at IIM Ahmedabad. They replace Chetan Ghate, Pami Dua and Ravindra Dholakia.  
  5. Few economists are hopeful the new members are likely to bring fresh ideas into the current policy, which is much needed given the unprecedented situation on account of the COVID-19, which pushed the country into the world’s biggest lockdown in late March. However, the government has been lifting restrictions in phases since June, although infections continue to rise.
  6. “We do not believe the new appointments dramatically change the near-term monetary policy outlook,” said Rahul Bajoria, economist at Barclays. “Given our new inflation forecast trajectory, we believe that room to cut rates further will likely open up only in Q1 2021,” he added.
  7. The delay in the committee’s meeting and the consequent policy decision risked causing even greater uncertainty in India, the world’s hardest-hit major economy in the pandemic. The country’s GDP contracted a record 23.9 per cent in April-June. 
  8. The latest meeting is a second straight scheduled review of the RBI’s policy, following emergency meetings in March and May – instead of April and June – and comes at a time the country’s macroeconomic situation is changing rapidly. 
  9. Typically, the RBI has focused on keeping consumer inflation – or the rate of increase in retail prices of a basket of commodities – under control. But the pandemic has pushed the RBI to shift gears to target economic revival for the time being, with the most recent of the central bank’s moves aimed at balancing growth with financial stability.
  10. Analysts say the RBI’s Monetary Policy Committee will maintain its “accommodative” stance on monetary policy – which rules out any hike in the key rate for the time being – in view of the COVID-19 situation. The RBI has already said it will continue with its current stance for as long as necessary to revive growth. 
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