The new RBI monetary policy team today put its focus on inflation and sees it as a transient hump and aims to push growth against the backdrop of slowdown due to the pandemic.
Key policy outcome:
On expected lines, the new MPC members have maintained status quo with no cut in key policy rate i.e. repo rate continues to remain at 4 percent in an unanimous. This is largely viewing sustenance of improvement in growth indicators.The rates will remain low to curb Covid 19 impact. ALso, MSF and reverse rate have remain unchanged.
"We expect the MPC to keep rates on hold in the October policy. In the inflation-targeting framework, the MPC is facing three quarters of over 6 percent average inflation, which requires RBI to write an explanatory letter to the government," said Suvodeep Rakshit, Vice-President and Senior Economist, Kotak Institutional Equities.
"As is the case with most other economies, the need for growth revival is squarely in the fiscal space. The monetary space is more of an enabler to ensure the system is well greased."
Stance taken to control inflation:
No cut in key policy rate as it is supply side constraints amid the pandemic will already keep inflation on the higher side for few more months. So, by and large accommodative stance would continue.
Also, RBI opines that as the caseload seems to ease in India in respect of coronavirus infection, there may be improvement in supply and hence RBI's comfort level on inflation of 4% may be reached by Q4Fy21.
Inflation would ease to RBI's target level by Q4FY2021:
This has been as supply side is seen improving with the tendency of infections peaking.Silver lining seen in easing caseload across the country.
GDP for Q4 may turn from negative terriotory and may become positive by Q4FY21. Also the contraction of Q1 is far behind us. For the whole of FY21, the GDP contraction is seen at 9.5%. And the sectors seen to recover the faster are construction, 2W among others.