RBI policy: Bank keeps interest rate unchanged at 5.15%; estimates FY 21 growth rate at 6%
RBI retained GDP growth at 5 per cent for 2019-20 and pegged it at 6 per cent for the next fiscal.
The Reserve Bank of India on Thursday kept GDP growth rate unchanged for the current fiscal at 5 per cent and projected a pick up in growth to 6 per cent in the next financial year.
The six member-Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das, for the second meeting in a row, kept repo rate unchanged at 5.15 per cent but maintained the accommodative policy stance which implies it was biased in favour of cutting rate to boost growth.
The MPC upped its inflation outlook for the second half of the next fiscal by 0.30 per cent to 5.4-5 per cent and termed the outlook on price rise as "highly uncertain".
"Economic activity remains subdued and the few indicators that have moved up recently are yet to gain traction in a more broad-based manner. Given the evolving growth-inflation dynamics, the MPC felt it appropriate to maintain status quo," the MPC said.
The six member committee voted unanimously to hold rates but also said that there is "policy space available for further action".
In a comment on the budget proposals, it said, "the rationalisation of personal income tax rates in the Union Budget 2020-21, should support domestic demand along with measures to boost rural and infrastructure spending".
It said though there has been a 0.50 per cent fiscal slippage in FY20, that has not increased the market borrowings, and also noted that the government has budgeted for a Rs 70,000 crore increase in the gross borrowings in FY21, when it has managed to crimp the fiscal gap to 3.5 per cent.
However, in the current year, the government will miss the fiscal deficit target of 3.3 per cent as it witnessed shortfall in tax revenue due to economic slowdown and a cut in corporate tax rate.
The MPC also noted that coronovirus outbreak may impact tourist arrivals and also impact the global trade.
On food price rise it said, onion prices are expected to ebb going forward. However, there is a likelihood for the prices of other food commodities to go up.
The headline inflation came at 7.3 per cent in December, and many analysts estimated it to print at over 7 per cent for January as well.
Under the mandate received from the government, the RBI has committed to maintain inflation at 4 per cent in the medium term with a two percentage point flexibility on either end.