Will RBI cut home, car loan rates in last monetary policy meet for FY20? Five key decisions expected

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February 05, 2020 1:01 PM

RBI monetary policy 2020: In the final bi-monthly monetary policy decision for FY20, the RBI is expected to keep the key rates steady, owing to a rise in inflation and stress on the economy, analysts said.

RBI monetary policy, rbi monetary policy 2020, rbi monetary policy 2020 dates, rbi monetary policy review, rbi monetary policy date, rbi monetary policy news, rbi monetary policy timing, rbi monetary policy committee, rbi monetary policy feb 2020The MPC meeting began on February 4, 2020, and the resolution will be announced at 11.45 am on February 6, 2020.

RBI monetary policy 2020: In the final bi-monthly monetary policy decision for FY20, the RBI is expected to keep the key rates steady, owing to a rise in inflation and stress on the economy, analysts said. The policy comes at a time when the economy is seeing a growth slowdown for the past few months. In Q2FY20, the GDP grew at a dismal pace of 4.5 per cent and the retail inflation surged to 7.35 per cent in December 2019 much above the comfort range of the RBI at 4 per cent.  The fiscal deficit was also increased to 3.8 per cent from the last target of 3.3 per cent by the government in budget 2020. “No rate change expected as inflation is still high. The stance will be accommodative and there could be a change in inflation forecast for the first half of the year. Don’t expect any call on GDP this time”, Madan Sabnavis, Chief Economist, CARE Ratings, told Financial Express Online. Any cut in key lending rates is expected to be passed on to the customers by the banks in the form of a reduction in rates of home and car loans.

A Reuters poll of economists expects the RBI MPC to keep the repo rate at 5.15 per cent till October 2020. The MPC meeting began on February 4, 2020, and the resolution will be announced at 11.45 am on February 6, 2020. The RBI MPC, in 2019, cut rates five times in a row by a total of 135 basis points. In the previous policy review in December, the rates were kept unchanged.

Watch | What is RBI Repo Rate? Key monetary policy bank interest rate cut, increase explained

“The Union Budget has estimated a higher fiscal deficit of 3.8% for this year and a glide path to 3.5%. Inflation is likely to trend at a level higher than RBI’s 4 to 4.5% target this quarter. Against this backdrop, the RBI is likely to maintain status quo on rates as well as its monetary policy stance. They are likely to continue an accommodative stance to support growth”, Shanti Ekambaram, President – Consumer Banking, Kotak Mahindra Bank, said.

“With the CPI inflation expected to remain above 6% in January 2020, and record a gradual decline toward 4% over the next 8-9 months, we expect an extended pause from the MPC in H1 CY2020, along with a change in stance to neutral from accommodative in either the February 2020 or April 2020 policy reviews”, Aditi Nayar, Principal Economist, ICRA, recently told Financial Express Online.

According to CARE Ratings, the RBI MPC may announce these 5 key decisions on February 6:

  • Repo rate: The  RBI is likely to maintain the status quo on repo rate at  5.15 per cent on account of the inflationary pressure in the economy at the retail level.
  • CRR: The cash reserve ratio (CRR) is expected to be retained at 4 per cent.
  • Stance: The RBI MPC may maintain accommodative given the persistent growth concerns.
  • Inflation: The RBI MPC may forecast an upward revision for Q4 FY20.
  • GDP growth: The RBI MPC may take on GDP in the first policy for FY21 in April. The RBI projected growth at 5.9-6.3 per cent for H1 FY21.

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