New Delhi: RBI Governor Shaktikanta Das will address media on the monetary policy at 10 am on Friday, the central bank announced today.
Note that for the first time, the MPC meeting that was earlier scheduled to be held during September 29-October 1, 2020 was cancelled as the government had not appointed the external members to the panel after the previous three committee members’ term expired.
RBI Monetary Policy: 4 things to look out for:
1. Rate action: The RBI policy has all eyes glued to it and it seems that the central bank is likely to keep a status quo on rates, but can also maintain an accommodative stance. The central bank has also frontloaded the rate cuts. Industry bodies are of the view that the RBI should maintain its accommodative stance on the policy interest rates in the wake challenges in limiting contraction in the economy due to COVID-19 pandemic.
2. Economic growth and inflation: RBI may also possibly release the GDP projections for FY-21. RBI has until now only stated that they expect the GDP to contract for FY-21. Challenges continue to remain in the economic growth recovery, but the frequency indicators are signalling some positive signs as of now. The factors that one must look out for include CPI, which continues to be less than 6% and the inflationary expectations are high in near terms. Economists see inflation to ease over the next 6-12 months and expect RBI to cut rates by another 25-50bps from December 2020 onwards.
3. Bad loans: Amid the Corona crisis, Indian banks have started showing a drop in bad loan ratios in FY21. s per the data available, gross bad loans as a percentage of total loan book dropped for 23 of 30 listed banks in the June quarter. In the second quarter of FY21 too, analysts expect bad loan ratios to remain steady or drop further. The Reserve Bank of India (RBI) has allowed loans to be restructured and not labelled as bad. The MPC may shed some light on the matter on Friday.
4. Updates on inflation expectations: In the inflation-targeting framework, the monetary policy committee is facing three quarters of over 6 per cent average inflation, which requires the apex bank to write an explanatory letter to the government.
The MPC has been given the mandate to maintain annual retail inflation at 4 per cent until March 31, 2021, with an upper tolerance of 6 per cent and lower tolerance of 2 per cent. Experts believe that supply-side disruptions may keep inflation in the higher territory for the next few months as well, which rules out the possibility of any rate cut.
Note that CPI inflation for August 2020 was 6.69 per cent, way beyond RBI’s target of 4% and the upper margin of 6%.It is worth mentioning that after its last MPC meeting in August, the RBI had kept interest rates unchanged to help tame inflation that in recent times had surged past 6 per cent mark, and said the economy is in an extremely weak condition following the pandemic. The RBI has cut interest rates by 115 basis points since February
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