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Tata Capital > Blog > Wealth Services > Key Takeaways from the RBI October 9, 2020 monetary policy report

Wealth Services

Key Takeaways from the RBI October 9, 2020 monetary policy report

Key Takeaways from the RBI October 9, 2020 monetary policy report

The inclusion of Jayanth Varma, Shashanka Bhide and Ashima Goyal in the Monetary Policy Committee or MPC of the Reserve Bank of India adds grace to the think tank of the central bank according to analysts. Jayanth Varma who is a professor at IIM Ahmedabad, Shashanka Bhide, a senior advisor at the National Council for Applied Economic Research, and Ashima Goyal, a member of the Economic Advisory Council of Prime Minister have been appointed as the new external members of RBI’s Monetary Policy Committee.

Additional Read: What is MPC and why was it formed

In line with the expectation of the market the three new members in the MPC of the Reserve Bank of India leant the MPC to ‘a dovish direction’ when the country is under a high level of inflation. At the same time they did not hesitate to advocate the usage of unconventional methods or even untested methods of the RBI and were also critical of contentious policies, which tend to over-emphasize the seriousness of high inflation.

Apart from the inclusion of the new members, the following are some of the other key highlights:

  • Policy repo rate at 4.00%, the reverse repo rate at 3.35%, the marginal standing facility rate being 4.25%, and the bank rate at 4.25%.
  • Further, conserve Ratio of CRR & SLR were also kept unchanged at 3.00% and 18.00% respectively.
  • The stance of the policy is accommodative.
  • The real GDP for 2020-2021 is being expected to reduce by 9.5%. However, if the current impetus of increase in gains continue, there are chances of stronger and faster rebound.
  • The projections of the MPC indicate that the inflation is likely to ease by Q4:2020-2021. The Consumer Price Index inflation is 6.8% in case of Q2:2020-2021 and between 5.4%-4.5% in case of H2:2020-2021.
  • The real time gross settlement fund transfer system would be available 24x7 starting from December. The threshold has been increased in cases of a retail bank loan to Rs. 7.5 crore, which was previously Rs. 5 crore.
  • TLTRO or targeted long-term repo operations would be conducted.
  • The pandemic has resulted in rural economies becoming resilient. There are estimates to give an idea that the production of food grains would cross yet a new record in 2020-2021.
  • The Mahatma Gandhi National Rural Employment Guarantee Act or MNREGA has also provided employment opportunities in rural regions of the country.
  • The manufacturing purchasing managers’ index or PMI has been at its highest, at 56.8, in September 2020.
  • The average costs of borrowings in the first six months of 2020-2021 by the centre has been at its lowest as compared to the past 16 years, at 5.82%.
  • The Reserve Bank of India assured that the centre’s borrowing program and the same in the states would be finished without any sort of disruption in the remaining months of 2020-2021 and there would also be no compromise of financial stability.
  • The Ways and Means Advances or WMA at the centre has been decided to set higher, which is Rs. 1.25 lakh crore, as compared to the previous years when it was at Rs. 35,000 crore only.
  • The increase by 60% for states in Ways and Means Advances, also, has been further extended for another six months until March 31st, 2020.

Additional Read: Monetary Relief Measures in the Time of COVID-19: Key Takeaways

With the new members in the MPC, there is hope for the economic situation to look up. In order to tide over the present day financial crisis, one of the best option is Tata Capital Wealth where there is dedicated Relationship Manager (RM) assigned to meet all your financial services requirement from Wealth Solutions - Mutual Funds, Bonds, Portfolio Management Services, Insurance, Alternative Investment Funds etc.; to your Loan needs – Personal Loan, Home Loan, Loan Against Property. Business Loan etc.

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