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RBI Monetary Policy key takeaways | See need for adjustment in interest rates on small saving schemes, says Shaktikanta Das

Maintaining surplus liquidity for better transmission, says Shaktikanta Das

February 06, 2020 / 04:33 PM IST

The Monetary Policy Committee (MPC) has unveiled its last credit policy for FY20 on February 6. The meet comes in the backdrop of slowing GDP growth and rising inflation.

Here are some of the key takeaways from the policy review:
- RBI keeps repo rate unchanged at 5.15 percent
- To continue accommodative stance as long as it takes
- RBI says economy continues to be weak, output gap remains negative
- MPC says policy space available for future action exists
- Rationalisation of personal income tax rates in the 2020-21 Budget to support domestic demand
Need for adjustment in interest rates on small saving schemes outlined
Pricing of loans by banks for medium enterprises to be linked to an external benchmark effective April 1
Time for restructuring of GST-registered MSME loans extended till December 2020, from March 2020 at present (Read more)
Revised regulations for housing finance companies to be issued
RBI to periodically publish a composite 'Digital Payments Index' (DPI) from July 2020 to capture the extent of digitisation of payments
- Framework for a Self-Regulatory Organisation (SRO) for digital payments to be issued
- Pan India Cheque Truncation System (CTS) to be made operational by September
Extension of date of commencement of commercial operations of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by one year, allowed
- Next meeting of the MPC scheduled during March 31, April 1 and 3

- April-September 2020 GDP growth seen in the range of 5.5-6 percent; October-December growth seen at 6.2 percent
- FY21 GDP growth seen at 6%
RBI Governor Shaktikanta Das says

- See growth pickup in FY21 led by private consumption

Also Read RBI Monetary Policy: FY21 GDP growth projected at 6%

- RBI anticipates inflation to remain elevated in the short-run, says overall inflation outlook “remains highly uncertain”
- Q4 FY20 CPI inflation target revised upwards to 6.5 percent
- Consumer inflation for April-September 2020 revised to 5-5.4 percent, the same for October-December period seen at 3.2 percent
- H1 FY21 CPI inflation target raised to 5-5.4 percent from 3.8-4 percent, the same for Q3 seen at 3.2 percent
- In a major shift, RBI to conduct long-term repos starting February 15 fortnight
RBI Governor Shaktikanta Das says
- CPI inflation in December, excluding onions, would have been 5.2 percent
- To remain vigilant to potential generalisation of inflation
- Inflation pressures could ease in H2 FY21
- Monetary policy constrained by uncertain inflation outlook

Bank credit
RBI Governor Shaktikanta Das says
- Incentivising bank credit to specific sectors
- Banks can deduct credit for certain sectors from net deposits to maintain CRR (cash reserve ratio)
- CRR amount to fall for every incremental auto, housing and MSME loans given

- Banks can offer external benchmark linked new floating rate loans to medium enterprises

Liquidity adjustment facility
Day fixed rate repo rate abolished
- Four 14-day term repos every fortnight being conducted now also withdrawn
RBI Governor Shaktikanta Das says
- Will conduct term repos of one- and three-year tenors of up to Rs 1 lakh crore at policy rate from February 15
- Will conduct longer-term variable repo operations of more than 14 days
- Long-term repos not intended to replace open market operations
Maintaining surplus liquidity for better monetary policy transmission
- Using Operating Twist to improve policy transmission

- Want banks to lend rather than park funds at reverse repos

Govt borrowing
RBI Governor Shaktikanta Das says
- Warns FY21 budget capital outlay to crowd-in private investment
- No plan to monetise government deficit
- Next fiscal, government market borrowing, as a percentage of GDP, lower than this year

- Hope government's next fiscal borrowing will go through in a non-disruptive manner

On coronavirus
- Breakout of coronavirus may impact tourist arrivals, global trade
RBI Governor Shaktikanta Das says
- Full effects of coronavirus outbreak not yet clear

Also Read RBI Monetary Policy: Shaktikanta Das & Co caught between a rock and a hard place

Key highlights from RBI Governor Shaktikanta Das press conference
- Status quo not a pointer to future action
- Have many instruments at our disposal to address the slowdown
- In a cause for worry for the government, Das said manufacturing capacity utilisation stood at 69.1 percent in July-September versus 73.6 percent in April-June
- Transmission of rate cuts sizeable in money, bond market instruments; the same to credit markets improving gradually
- Investment outlook showing signs of improvement
- See some evidence of corporate tax cut helping listed companies in building assets
- MPC will continue to be proactive in 2020
- Use of risk-weighted assets not the right tool to incentivise credit growth
- Forex flow being very carefully and intensely monitored by RBI
- Impact of higher deposit insurance cover premium on banks' balance sheet unlikely to be much

- Administrator working out next course of action for PMC Bank

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