The Monetary Policy Committee (MPC) presented its fourth bi-monthly monetary policy for the current financial year today. As anticipated by CARE Ratings, the MPC left policy rates unchanged while continuing with the accommodative policy stance despite the buildup in inflationary pressures. Policy repo rate unchanged at 4%. Reverse repo unchanged at 3.35%, MSF and bank rate maintained at 4.25%. Accommodative policy stance to continue as long as necessary that is into FY22.

This was the second policy meet under the newly formed MPC and all the members unanimously voted for maintaining status quo on the monetary policy.

The RBI in its policy decision has factored in the nascent signs of economic recovery while acknowledging that it has not been broad based. It has also acknowledged that the price pressures prevailing in domestic economy has been more severe than it has earlier estimated.

The RBI expects a faster economic recovery and has revised upwards its outlook for GDP growth for FY21. Upward revision in GDP growth for FY21 to -7.5% (from -9.5%). This is closer to CARE Ratings GDP estimate of -7.7% to -7.9%. At the same time it outlook for inflation has turned adverse leading it to raise it outlook on prices levels, the rating agency said.

Kavita Chacko, senior economist, CARE Ratings said, "We do not foresee a rate cut in this fiscal year as inflation would remain at elevated levels and is unlikely to cool below the RBI's target 6%. Future rate cuts likely only post March ’21 and would be driven by the inflation readings. Comfortable liquidity situation in the banking system to be maintained by the RBI with TLTRO and OMOs.  All the 26 stressed sectors to be eligible for liquidity support through on tap TLTROs (of Rs. 1 lakh). We could expect more TLTROs going forward."