RBI Monetary Policy’s 10 key takeaways: Repo rate, liquidity, TLTRO, growth, inflation, more

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged at 4 per cent, as was expected.

The next meeting of the MPC is scheduled during June 2-4, 2021.

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged at 4 per cent, as was expected. The MPC also maintained an accommodative stance “as long as necessary to sustain growth on a durable basis” and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward, RBI Governor Shaktikanta Das announced Wednesday. The next meeting of the MPC is scheduled during June 2-4, 2021. All members of the MPC — Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Mridul K Saggar, Michael Debabrata Patra, along with RBI Governor Das unanimously voted for keeping the policy repo rate unchanged. This was the first bi-monthly MPC meeting of FY22 and was the fifth time in a row where RBI kept the repo rate unchanged.

Here’re the key takeaways from the policy outcome

Repo, reverse repo rates: The RBI MPC decided to keep the repo rate unchanged at 4 per cent on the back of rising COVID-19 cases, imposition of restrictions and lockdown in the state of Maharashtra. The reverse repo rate remained changed at 3.35 per cent and the marginal standing facility (MSF) rate and the bank rate at 4.25 per cent.

Growth projection: Due to the on-going vaccination programme, the gradual release of pent-up demand, and the investment-enhancing and growth-supportive reform measures taken by the government, the projection of real GDP growth for FY22 is retained at 10.5 per cent. For each quarter RBI sees the real GDP growth of 26.2 per cent in first quarter (Apr-Jun); 8.3 per cent in Q2 (Jul-Sep); 5.4 per cent in Q3 (Oct-Dec); and 6.2 per cent in Q4 (Jan-Mar).

Inflation: RBI has revised the projection for CPI inflation to 5 per cent in Jan-Mar quarter of FY 21; 5.2 per cent in Apr-Jun quarter, 5.2 per cent in Jul-Sep quarter; 4.4 per cent in Oct-Dec quarter; and 5.1 per cent in Jan-March quarter of FY22. This has been announced taking into consideration the trajectory of food inflation, progress of the south-west monsoon in 2021, high international commodity prices and logistics costs.

Liquidity: During April-August 2020, special refinance facilities of Rs 75,000 crore were provided to All India Financial Institutions (AIFIs) like NABARD, SIDBI, NHB and EXIM bank. RBI Governor Shaktikanta Das has further announced liquidity support of Rs 50,000 crore for fresh lending during 2021-22. RBI will provide Rs 25,000 crore to Nabard (National Bank for Agriculture and Rural Development); Rs 10,000 crore to National Housing Bank (NHB); and Rs 15,000 crore to Sidbi (Small Industries Development Bank of India).

VRRR auctions: Despite the recommencement of 14-day variable rate reverse repo (VRRR) auctions since January 15, 2021, liquidity absorbed through the fixed rate reverse repo has steadily increased from a fortnightly average of Rs 4.3 lakh crore during January 16-29 to Rs 4.9 lakh crore during January 30-March 31, 2021, Shaktikanta Das said. In the view of the success of VRRR and given the rising level of surplus liquidity, RBI has decided to conduct VRRR auctions of longer maturity, he added.

New bond buying plan G-SAP 1.0: RBI will put in place a secondary market government securities acquisition programme or G-SAP 1.0 for this financial year to enable an orderly evolution of the yield curve. For the first quarter of 2021-22, RBI will conduct a G-SAP of Rs 1 lakh crore and the first purchase of government securities for an aggregate amount of Rs 25,000 crore will be conducted on April 15, Das said.

TLTRO scheme extension: RBI governor announced that On-tap Targeted Long Term Repo Operations (TLTRO) scheme, which was available till March 31, 2021, has now been further extended by a period of six months to September 30, 2021, to ensure adequate liquidity support to the economy.

RTGS, NEFT facilities for payment operators: RBI has extended NEFT and RTGS facilities to non-bank payment system operators. So far, only banks were allowed to use these facilities. With today’s announcements, prepaid payment instrument (PPI) issuers, card networks, White label ATM operators and Trade Receivables Discounting System (TReDS) platforms can also use these facilities.

Interoperability of PPIs, and increase in account limit to Rs 2 lakh: To an attempt to promote digital transaction, RBI has proposed to hike the limit of the outstanding balance in wallets to Rs 2 lakh from Rs 1 lakh.

Extension of interim WMAs limit: To help state governments tide over the financial stress caused by COVID-19 pandemic, RBI has announced an extension of interim ways and means advances (WMAs) limit of Rs 51,560 crore. Additionally, RBI has enhanced the aggregate WMA limit of states and Union Territories (UTs) to Rs 47,010 crore per year.

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