The Reserve Bank of India (RBI) left interest rates unchanged but promised to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward.
The monetary policy committee (MPC) unanimously decided to keep the policy rate unchanged at 4% after evaluating the global and domestic economic situations and the trajectory of inflation in the months ahead. Since February 2019, Shaktikanta Das-led RBI has cut interest rates by 250 basis points (100 bps is equal to one percentage point) to boost growth. It has also unveiled a raft of measures to provide relief to the economy ravaged by the coronavirus pandemic.
The RBI also released the results of the July 2020 round of its Consumer Confidence Survey (CCS) which showed that consumer confidence plummeted in July 2020 with the current situation index (CSI) recording its all-time low. The future expectations index (FEI), however, inched back into the positive territory, indicating signs of recovery for the year ahead.
The survey showed that consumer perception of the prevailing economic situation, employment scenario and own income was significantly lower than that in May 2020. Respondents were, however, somewhat optimistic about these parameters for the coming year compared to the previous survey round. Most respondents reported reduction in discretionary spending though their overall spending increased during the last one year. They do not expect to increase non-essential spending in the coming year as well, the survey showed.
The MPC recognised the challenges facing the economy. “The MPC noted that in an environment of unprecedented stress, supporting recovery of the economy assumes primacy in the conduct of monetary policy. While space for further monetary policy action is available, it is important to use it judiciously to maximise the beneficial effects for underlying economic activity,” Das said in his statement.
RBI governor pointed to the uncertainty over the inflation outlook, saying the headline inflation prints of April-May 2020 are obscured by the spike in food prices and cost-push pressures.
