Key Takeways From December 2020 RBI MPC

At a time when economy has shown resilience in the second quarter of FY21 with a better than anticipated growth of -7.5% and stubborn levels of inflation, here is what RBI's decision are like:

No repo rate cut:

In view of the economic conditions, the RBI has maintained status quo on repo rate at 4 percent. Reverse repo rate has also been held steady.

Marginal Standing facility and bank rate also unchanged at 4.25 percent.

GDP forecast:

For FY 2021, real GDP shall be -7.5 percent. Q3 growth seen at 1%, Q4 at 0.7 percent

Nascent recovery signs visible in the H2FY21.The RBI has revised growth forecast in view of Q2 GDP. In its earlier MPC meet outcome, the RBI said the RBI had said the real GDP growth in 2020-21 was expected to be negative at (-) 9.5 per cent, with risks tilted to the downside: (-) 9.8 per cent in Q2:2020-21; (-) 5.6 per cent in Q3; and 0.5 per cent in Q4.

Accomodative stance will be maintained:

This shall be in view of the economy that is still facing the economic fall-out due to Covid 19 and liquidity should be maintained.

Inflation:

CPI inflation for Q3 is estimated to be 6.8 percent.

Inflation will remain on the higher side with some relief in the winter months.

Core as well as headline inflation has been on the higher side above the RBI's comfort target of 6 percent for seven months now. This is on account of higher commodity, lower labour availability, unseasonal rains etc.

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