Highlights of RBI's 4th bi-monthly monetary policy
KEY TAKEAWAYS
* Repo rate cut by 25 basis points to 5.15%
* Reverse repo adjusts to 4.90%
* MSF, Bank Rate adjusts to 5.40%
* MPC to continue with accommodative stance
* Accommodative stance to continue as long as necessary
* MPC to continue with accommodative stance to revive growth
* All MPC members voted for repo rate cut, accommodative stance
* Five MPC members voted for 25 bps repo rate cut
* MPC member Dholakia voted for 40 bps repo rate cut
ECONOMY AND GROWTH
* Slowdown needs intensified effort to restore growth momentum
* See policy space to address growth concerns within CPI mandate
* Cuts FY20 GDP growth forecast to 6.1% from 6.9%
* Cut Apr-Jun 2021 GDP growth forecast by 20 bps to 7.2%
* FY21 GDP growth seen 7.0% if rains normal, no major shocks
* Apr-Jun mfg capacity utilisation at 73.6% vs 76.1% Jan-Mar
* Seasonally adjusted mfg capacity utilisation at 74.8% Apr-Jun
* "Output gap has widened further"
* Surveys suggests weak demand conditions persisting
INFLATION
* Inflation seen below 4% in rest of FY20, early months of FY21
* See CPI inflation at 3.4% in Jul-Sep vs 3.1% before
* Retain CPI inflation forecast of 3.5-3.7% for Oct-Mar
* Retain Apr-Jun 2021 CPI inflation forecast of 3.6%
* Risks to CPI inflation forecast "evenly balanced"
* FY21 inflation at 3.5-4.0% if rains normal, no major shocks
* Food prices rose Apr-Aug, but overall food inflation is benign
* Baseline CPI path assumes food inflation firming up near-term
* Uneven progress of monsoons could impinge upon agri prospects
* Food inflation outlook improved considerably since Aug policy
* Vegetable prices may remain elevated in immediate months
* See vegetable prices moderating once winter supplies enter mkt
* Pulses prices seen contained by adequate buffer stocks
* Agri prospects have "brightened considerably"
* Agri positioned well for regenerating employment, income
* Urban households' 1-year-ahead inflation expectations up 20 bps
* Urban households' 3-month-ahead inflation expectations up 40 bps
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