RBI Policy

RBI Governor’s  Monetary Policy  Meeting on  6th Feb 2020- Announcements

Key Highlights of the monetary policy

  • Policy rate kept unchanged at 5.15%.
  • Transmission into money and corporate debt market has been sizeable with rate reduction of 146 bps and 190 bps resp. in the last one yr on account of 135 bps repo rate cut
  • Inflation outlook –Inflation is estimated at 6.5% in Q4FY20, 5-5.4% in H1FY21 and 3.2% in Q3FY21. Retail inflation has been higher than the expectation at 7.4% in Dec-19 vs. 4.6% in Oct-19 led by food inflation mainly onion prices. RBI expects cost push pressures to inflation going forward emanating from 1) volatile crude prices due to geo-political tensions 2) increase in input prices 3) higher food inflation coming from rise in pulse prices, milk etc.
  • GDP outlook –RBI outs GDP growth forecast for FY21 at 6%
  • Given the inflation outlook, further reduction in policy rates is unlikely in coming quarters. RBI has taken all the necessary steps to plug the loopholes to revive the economy. Given the RBI-™s accommodative stance in keeping sufficient liquidity in the system which shall determine interest rates, status quo on policy rates should also not be taken negatively.

Banking related measures

  • To boost the credit lines to retail sector like automobiles, residential housing and loans to MSME, RBI has given CRR exemption on the incremental loans upto 31 July 2020.This shall reduce the funding cost of the banks and will provide added incentive to lend more.
  • Loans to medium enterprises will now be externally benchmarked(to repo rate/any benchmark market interest rate given by FBIL). This is similar to benchmarking of retail loans including personal loans and MSME loans done in Oct-19. Detailed guidelines for the same will be issued. This shall be margin negative in the near term as all the banks have sizeable lending to the said segment. However, pricing of the same will be crucial that will determine the margins.
  • Extension of the benefit of one-time restructuring of standard MSME accounts that are in default (as on 1st Jan 2020) till 31 Dec 2020.This is one-time regulatory dispensation available.
  • Extension of date of commencement of commercial operations of project loans for commercial real estate (delayed for the reasons beyond the control of the promoters) by another one year without downgrading asset classification. This is sizeably positive for all the banks, NBFCs, HFCs with higher exposure to commercial real estate projects.
  • Allowing RRBs to act as merchant acquiring banks, using Aadhar Pay – BHIM app and POS terminals. This move is also positive.
  • Revised draft guideline for HFCs to be issued by RBI (this month) in the light of change in regulatory body from National Housing Bank (NHB) to RBI.
  • Formation of SROs (Self-Regulatory Body) for digital payment systemsthat shall work as two-way communication channel between the players and the regulator/supervisor.

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