The Reserve Bank of India(RBI) issued its Bi-Monthly Monetary Policy Statement via a Press Release. RBI Governor Shaktikant Das addressed the media and put forward the highlights and the major changes that have been brought in by the Monetary Policy Committee.
Similar to the June 2020 Monetary Policy Statement, this time too, RBI focused on easing the financial stress caused by the Covid-19 Disruptions.
Following are the focal points of the Monetary Policy Statement issued by RBI today:
1.Monetary Policy Committee (MPC) decided to keep the Repo Rate unhinged at 4 Percent. Consequently, the Reverse Repo Rate stands at 3.35 Percent and the Bank Rate stands at 4.25 Percent.
The MPC decided to continue with the accomodative stance to revive growth and mitigate the impact of Covid-19 on the Indian Economy, while ensuring that inflation remains within the target going forward.
Assessments of Global Economy
1.MPC has assessed that the Contractions in the economic activity have been more severe in Q2:2020 than in Q1 and the near term outlook points to a slow , uneven and hesitant recovery .Among Advanced Economies, Output in the US and Europe underwent a deeper contraction in Q2:2020.
2.Global Financial Markets have rebounded since end-March 2020 with intermittent pause, shrugging off the volatility and sharp corrections recorded in Q1:2020 with strong inflows in Emerging Market Economies in Q2. Crude Prices have also been supported due to supply cuts by Organization of Petroleum Exporting Countries (OPEC).
3.Gold and Silver Prices have rallied to an all time high due to Safe Haven Demand.In Advanced Economies, Inflation has been kept subdued due to soft demand.In Emerging Economies, Supply Disruptions and Demand Revival has elevated the Consumer Prices in June 2020.
Assessments of Domestic Economy
1.On the Domestic Front, economic activity has started to recover from the lows of April-June Quarter following the uneven re-opening of some parts of the country.
2.The Agriculture sector has emerged as a bright spot on the back of temporal progress of South-West Monsoon.]These developments have a salutary effect on rural demand as reflected in Sales of Fertilizers, Tractors, Motor-Cycles and Fast Moving Consumer Goods (FMCG).
3.The Contraction in Index of Industrial Production (IIP) eased with lifting of lockdown in different parts of the country.
4.The Indicators in Service Sector for May-June months indicate signs of modest resumption of economic activity although still at lower levels as compared to the previous yea.Domestic Passenger Traffic and Cargo Traffic continued to post sharp contraction and construction activity remains tepid.Import of Capital Goods has also declines.
5.According to Data Released by National Statistical Office (NSO), there has been a sharp upward revision of food inflation.Inflation excluding Food and Fuel has spiked as well.Producers' sentiments on input prices remain muted as their salary outgoes have fallen while household's near term expectation has remained above their long term expectation.
6.Lower Borrowing Cost have led to record primary issuance of Corporate Bonds of Rs.2.1 Lakhs Crore in the first quarter of 2020-21.India’s merchandise exports contracted for the fourth successive month, although the pace of fall moderated on improving shipments of agriculture and pharmaceutical products. Imports fell sharply in June, reflecting weak domestic demand and low international crude oil prices.
7.India’s foreign exchange reserves have increased by US$ 56.8 billion in 2020-21 so far (up to July 31) to US$ 534.6 billion – equivalent to 13.4 months of imports.
Outlook
1. Supply chain disruptions on account of COVID-19 persist, with implications for both food and non-food prices. A more favorable food inflation outlook may emerge as the bumper Rabi Harvest eases prices of cereals.
2.The inflation outlook of non-food categories is, however, fraught with uncertainty. Higher domestic taxes on petroleum products have resulted in elevated domestic pump prices. Volatility in financial markets and rising asset prices also pose risks to the outlook. Inflation may remain elevated due to these factors.
3.External demand is expected to remain anaemic under the weight of the global recession and contraction in global trade.For the year 2020-21, as a whole, real GDP growth is expected to be negative. An early containment of the COVID-19 pandemic may impart an upside to the outlook.
The MPC has noted that the economy is experiencing unprecedented stress in an austere global environment. Extreme uncertainty characterizes the outlook, which is heavily contingent upon the intensity, spread and duration of the pandemic – particularly the heightened risks associated with a second wave of infections – and the discovery of the vaccine.
The stance of monetary policy remains accommodative to revive growth and mitigate the impact of COVID-19 on the economy and remain watchful for a durable reduction in inflation to support the revival of the economy.
Source: www.rbi.org.in/Scripts/Annualpolicy.aspx.
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