RBI Expects FY21 GDP Growth to Contract by 9.5% in First Official Estimate; Repo Rate Unchanged at 4%

9-October-2020

The Reserve Bank of India (RBI) on Friday left key interest rates unchanged for the second time in a row as widely expected, while retaining an accommodative monetary policy stance, implying more rate cuts in the future if needed to support the coronavirus-hit economy.

The monetary policy committee (MPC) kept the repo rate, its key lending rate, at 4%, while the reverse repo rate or the key borrowing rate stayed at 3.35%. The central bank has slashed the repo rate by 115 basis points (bps) since late March. The MPC meeting was originally due to conclude on October 1 but had to be rescheduled as the government failed to appoint three new external members to the panel after their terms ended last month.

In his first official estimate, RBI governor Shaktikanta Das said the FY21 GDP growth may contract by 9.5%.

�See FY21 GDP contracting by 9.5%... RBI will maintain comfortable liquidity position. Indian economy entering into decisive phase in fight against coronavirus. Contraction in economic growth of Q1 behind us; silver linings are visible,� Das said in a press conference announcing MPC decisions.

#BREAKING | @RBI KEEPS REPO RATE UNCHANGED AT 4% #RBIPolicy pic.twitter.com/HSOZpzftse

— CNBC-TV18 (@CNBCTV18Live) October 9, 2020

He added that the economy may see positive GDP growth in Q4. �I am an optimist� we can dream of a brighter tomorrow. Global economic activity has rebounded in Q3, albeit unevenly. Global financial conditions continue to remain benign. Deep contraction of Q1 FY21 is behind us. India can renew its tryst with pre-Covid growth trajectory,� he said.

�The rural economy looks resilient. Food grain production is set to cross another record in FY21. Migrant labour is returning to work in urban areas. Online commerce is booming, people are getting back to offices. Inflation would ease closer to target by Q4. The mood is shifting from fear and despair to hope� GDP growth may turn positive by Q4,� he added.

Sensex and Nifty edged higher after the RBI announcement. The NSE Nifty 50 index rose 0.14% to 11,850.65 as of 10:15am IST, while the S&P BSE Sensex was up 0.18% at 40,258.93.

RBI had last revised its policy rate on May 22, in an off-policy cycle to perk up demand by cutting interest rate to a historic low. The 25th meeting of the rate-setting MPC with three new external members -- Ashima Goyal, Jayanth R Varma and Shashanka Bhide -- began on October 7. This was the maiden meeting of the new members who were appointed just a day before the meeting for a term of four years.