MUMBAI, Dec 04:
The Reserve Bank of India (RBI) on Friday kept key interest rates steady as widely expected on Friday amid persistently high inflation, and after a better-than-expected reading on economic growth.
The Indian markets scaled fresh lifetime highs with the S&P BSE Sensex hitting 45,000 for the first-time ever after the RBI decided to keep the repo rate unchanged at 4 per cent while maintaining the 'accomodative' stance.The markets gained nearly 1%, hitting new record highs on Friday following RBI’s growth optimism.
The monetary policy committee also decided to retain an accommodative policy stance at least for the current financial year and into the next year to revive growth on a durable basis, Governor Shaktikanta Das said in an online briefing.
Das said the economy was rebounding faster than expected from a coronavirus-induced slump earlier in the year but warned signs of recovery were far from being broad based.
The key lending rate of the RBI or the repo rate was left unchanged at 4% while the reverse repo rate or the key borrowing rate stayed at 3.35%.
GDP is now estimated to contract by 7.5% for FY21. The RBI had estimated GDP to contract by 9.5% in its assessment in October. Q3 growth seen at 1%; Q4 at 0.7%.
The RBI expects the economy to record positive growth in the second half of the current financial year.
"The second half is expected to show some positive growth,Das said, adding that during the financial year as whole the economy was likely to contract by 7.5 per cent, which is an improvement over its previous projection of 9.5 per cent contraction.
In October, the RBI had projected the contraction in gross domestic product (GDP) at 9.5 per cent.
Das said the GDP is expected to turn positive in the third quarter and expand at 0.1 per cent. The last quarter is likely to see an expansion of 0.7 per cent.
Hence, the growth in second half of the fiscal is expected to show a positive growth.
In its October monetary policy statement, RBI had said the real GDP growth in 2020-21 is 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.
Corporate earnings show that demand is recovering and profit numbers are going upIndian stocks, which were up ahead of the policy announcement, were little changed after the decision, while rupee and the benchmark 10-year bond yield were largely flat at 73.78 against the dollar and 5.93% respectively.
The central bank has slashed the repo rate by 115 basis points (bps) since late March to cushion the shock from the coronavirus crisis and sweeping lockdowns to check its spread.
However, inflation has remained consistently above the upper end of the RBI’s mandated 2%-6% target range every month barring March this year, with core inflation also remaining sticky.
On Friday, Das said the MPC expects this trend to persist and that the outlook for inflation has turned “adverse.”
The MPC sees retail inflation in the current quarter at 6.8% before cooling slightly to 5.8% in the Jan-March quarter.
Gross domestic product in the July-September quarter contracted 7.5% on-year, after a decline of 23.9% in the previous three months.
The latest decline was more moderate than expected, prompting some analysts to push back expectations for more interest rate reductions.
Das also noted that consumer confidence for the next year has turned positive and recovery in rural demand is likely to materialise further in the wake of urban demand rising further
RTGS system to be made 24X7 in next few days, said RBI..
From January onwards, the limit for contactless card transaction will be upped from Rs 2,000 to Rs 5,000 per transaction.
A proposal was made to issue RBI digital payment security control directions for regulated entities.
A detailed regime for enhanced disclosure of customer complaints, monetary compensation for any kind of delay in redressal was also announced.
The guidelines for the proposed Digital Payment Security Control are likely to be made public shortly, Das said.