INSUBCONTINENT EXCLUSIVE:
RBI Monetary Policy: Traditionally, the RBI has focused on keeping consumer inflation under controlHighlightsRBI to release policy statement
at 11:45 am, Governor to speak at noon This is first scheduled monetary policy review since February Most analysts expect RBI to cut
repo rate from 4% to 3.75% today
The Reserve Bank of India (RBI) will shortly announce its decision on monetary
policy today as its top brass concludes a three-day review
Economists remain divided over whether the central bank will ease monetary policy further, by reducing the repo rate, despite inflation
remaining way beyond its comfort zone
When Governor Shaktikanta Das addresses the media at noon, all eyes will be also on any hints of further monetary easing in the coming
months, as well as any clarity on a relaxation in loan EMIs brought in during the coronavirus lockdown
Some say the country's worsening economic outlook amid increasing COVID-19 cases necessitates further reduction in the key lending rates,
especially at a time when the central bank's recent policies have focused on financial stability and the need to support growth despite the
This is the first scheduled policy review since February
The RBI's six-member Monetary Policy Committee has already met twice outside its bi-monthly cycle, first in March and then in May, on
account of the fast-changing macroeconomic situation arising from the coronavirus pandemic.Around two-thirds of economists in a poll by news
agency Reuters expect the RBI to cut the repo rate by 25 basis points today, and once more next quarter to a record low of 3.50 per cent
At present, the repo rate - or the key interest rate at which the RBI lends short-term funds to commercial banks - stands at 4 per cent, its
lowest level recorded since 2000.Traditionally, the RBI has focused on keeping consumer inflation - or the rate of increase in retail prices
of a basket of commodities - in control, at a medium-term target of 4 per cent
However, in June, retail inflation soared to 6.09 per cent amid a jump in the prices of food items, especially meat, cereals and pulses,
from 5.84 per cent in March - the nearest comparable month
shift gears to target economic revival for the time being
to support growth.The RBI has already reduced the repo rate by a total of 115 basis points since February, on top of the 135 basis points
last year, responding to slowing growth.In late March, the government imposed one of the strictest lockdowns in the world which lasted for
more than two months to curb the spread of coronavirus, and gradually eased restrictions in June although infections continue to rise.Many
analysts expect the economy to contract in the coming quarters and the entire financial year ending March 2021 on account of the coronavirus
Most analysts in the Reuters poll expect the economy to contract 20 per cent in April-June period, and remain in negative terrain until
October-December.For the full year 2020-21, the economy is likely to shrink 5.1 per cent, which would be its weakest performance since 1979,
a sharp contrast to the 1.5 per cent expansion forecast in April
Some economists, however, feel it may be prudent for the RBI to pause in August before resuming its rate-cutting cycle once inflation has
stabilised.Analysts also keenly await the RBI's commentary on loan restructuring as a moratorium allowed by it to commercial banks due to
the COVID-19 situation comes to an end on August 31
Analysts say loan restructuring is more essential at this juncture as banks have opposed a further extension on concerns over its
misuse.Experts are of the view that 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
It has remained accommodative even before the outbreak.
