RBI MPC: Keeping the powder dry

RBI MPC: Keeping the powder dry • RBI goes for a deliberate pause much against general consensus. Repo Rate retained at 5.15%. Accommodative stance maintained. • Unanimous committee consensus over wait and watch mode allowing the previous policy actions to play out completely. Policy space for future actions still exists. • RBI looking forward to the Budget and incoming economic data for more clarity and insight on the trajectory of economic growth. • Monetary Transmission: Delayed in credit markets but expected to pick up as share of base rate loans decline in overall loans and as rates on MCLR based floating rate loans renew. • Inflation: RBI expects inflation to peak out in the second half of the financial year 2019-20 on sustained upward pressure in food prices and build up in price pressures in protein items. H2 CPI projection revised upwards to 4.7% to 5.1% for H2 FY20 and 3.8% to 4.0% for H1 FY21. • GDP Growth: Growth outlook mixed. RBI expects government measures and policy actions to feed into demand and trigger investment activity. Downward risks to growth emanating from subdued global and domestic economic activity continue. Real GDP growth for 2019-20 revised downwards from 6.1 per cent in the October policy to 5.0%, 4.9%-5.5% in H2 and 5.9%-6.3% per cent for H1:2020-21. RBI has clearly passed the baton to the government after doling out five successive rate cuts in Bi Monthly Policy meets held in the calendar year. RBI clearly states that there is policy space for future actions and that it will continue to maintain a growth supportive stance. It is evident that the rate cut cycle is not over yet and reviving growth and boosting demand in the economy will continue to remain a priority for the central bank.