The country's dwindling economic growth can be revived without cutting policy rate, the Reserve Bank of India (RBI) Governor Shaktikanta Das assured markets after the central bank left the repo rate unchanged but announced steps to boost credit growth and lower interest rates on retail loans.
The Monetary Policy Committee (MPC) on February 6 voted unanimously in favour of a status quo citing inflationary concerns and continued with accommodative stance.
"While these decisions may be on expected lines and perhaps widely discounted, it is important not to discount the RBI," Das told reporters after policy announcement.
"It has to be kept in mind that the central bank has several instruments at his command that it can deploy to address the challenges that the economy currently faces in terms of sluggishness in the growth momentum," Das added.
The RBI Governor's comments come less than a week after the government failed to announce effective growth supportive measures, raising concerns on revival of economic activity going ahead.
The country’s economy grew at 4.5 percent in the first half of current financial year and is likely to be around 5 percent for 2019-20. As per RBI estimates, GDP may grow at 6 percent next year.
Das said that the present monetary policy decision was constrained by elevated inflation pressures but there are other ways in which the RBI can strive to revive growth.
These measures include injection of Rs 1 lakh crore liquidity by introduction of long-term repo auctions and exemption of incremental retail loans given for auto, housing and MSMEs while calculating the cash reserve ratio (CRR).
"It is an effort to ensure better monetary policy transmission," Das said, adding that the liquidity injection will help banks cut lending rates. "When they get cheaper funds, rates will get transmitted," he said.
In response to RBI's past repo rate cuts of 135 basis points, lending rates eased by 69 basis points for fresh loans and by 13 basis points for existing loans between February-December 2019.
RBI also allowed one-year extension in date of commencement of commercial operations (DCCO) for delayed commercial real estate sector projects. Under an ongoing scheme, loans given to such projects are not be downgraded.
Das said that there are many incomplete projects that got delayed due to reasons beyond the control of promoters like getting environmental clearance or battling legal impediments.
RBI said that it will ensure adequate liquidity in the banking system and will remain proactive in 2020-21 as well.Going forward, the central bank expects that these measures, along with those take by the government, will improve monetary transmission and help pull up domestic demand.