RBI Monetary Policy Oct 2021 HIGHLIGHTS: No repo rate cut for 8th time; CPI inflation may fall to 5.3% in FY22

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Updated: October 8, 2021 4:47:00 pm

RBI MPC October 2021: RBI’s Monetary Policy Committee decided to maintain the repo rate at 4 per cent in October policy for the eighth straight time. Shaktikanta Das said that inflation will fall.

Shaktikanta das, RBI MPC, RBI, interest ratesAnalysts expect RBI's monetary policy to maintain a status quo on key policy interest rates and accommodative stance for the eighth consecutive policy meet

RBI MPC October 2021: The Reserve Bank of India’s Governor Shaktikanta Das announced that the monetary policy committee has unanimously decided to keep the repo rate unchanged for the eighth consecutive time. Das also decided to continue with the accommodative stance as long as necessary to support growth. Repo rate has been maintained at 4 per cent, and reverse repo rate at 3.35 per cent in October policy. RBI Guv said that high-frequency indicators suggested that economic activity has gained momentum. Moreover, RBI MPC has lowered the FY22 inflation forecast to 5.3 per cent from earlier estimate of 5.7 per cent. “India is in a much better place today than at the time of the last MPC meeting. Growth impulses are strengthening, inflation trajectory more favourable than expected,” Das added. Since March 2020, RBI has slashed repo rates to a record low of 4 per cent through two rate cuts of 75 bps in March 2020 and 40 bps in May 2020.

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Highlights

    15:18 (IST)08 Oct 2021
    RBI keeps repo rate steady, experts say watch for reverse repo hike in December; Monetary Policy decoded

    The Reserve Bank of India’s Monetary Policy Committee (MPC) has kept the repo rate and reverse repo rate steady for the eighth consecutive time in October 2021. The monetary policy decision of status quo on interest rates was unanimous by all the six MPC members. RBI Governor Shaktikanta Das announced to maintain the policy stance ‘accommodative’ for as long as necessary to support growth. The vote on continuing with the accommodative policy stance was 5:1. The central bank retained the GDP forecast for the current financial year at 9.5 per cent. 

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    13:39 (IST)08 Oct 2021
    ASSOCHAM reaction on RBI Monetary Policy

    ASSOCHAM today hailed the decision of the RBI's Monetary Policy Committee to stay on the course of accommodative policy interest rates, without yielding to demand in certain quarters for a policy reversal. Commenting on the stance, ASSOCHAM Secretary General, Deepak Sood said, RBI has wisely responded   to India-specific needs for continuation of supportive interest rates for an economy which, as rightly pointed out by Governor Shaktikanta Das, is near the shore and not quite on it. Reversal of the easy monetary stance by a few developed nations need not be the template for India, the RBI has rightly emphasised. On inflation, Sood said, ASSOCHAM has been voicing a stand similar to what is mentioned in the RBI policy statement with regard to the need for 'calibrated reversal' of indirect taxes on fuel. "We have been consistently pressing for including petroleum products into the GST network for lowering the cost push inflationary pressures''.

    13:33 (IST)08 Oct 2021
    Low-interest rates amid festive season will push consumption in housing sector

    “RBI continues to be supportive of driving growth in the economy through benign interest rates, keeping liquidity conditions comfortable for all stakeholders. Unchanged policy rates and an accommodative stance keep up the optimism of market participants. Lower inflation projections from 5.7% to 5.3% for FY22 would be a  positive factor, signaling to harden interest rates unlikely in the near term. GDP growth remained at 9.5%, with upward revisions in Q2/Q3 FY22 hint at gradual recovery, as the aggregate demand is yet to pick up meaningfully. The halting of GSAP operations is an early sign of normalization, but readiness towards OMOs will keep liquidity conditions sanguine. We believe the backdrop of low-interest rates amidst the festive season will push consumption in housing and its ancillary sectors. We remain positive on stocks such as HDFC Ltd, CanFin Homes, and large banks such as SBI, ICICI Bank. Naveen Kulkarni, Chief Investment Officer, Axis Securities

    13:24 (IST)08 Oct 2021
    MPC keeping a close eye on a sustained pick-up in growth

    The inflation trajectory moderated in Q2 and is projected to be around the 5% mark, within RBI’s tolerance levels. Overall, the MPC is keeping a close eye on a sustained pick-up in growth, given slowing growth patterns in some of the other economies. The policy had a “balanced and neutral” tone – with continued support for growth and a commitment to a gradual and calibrated change in policy based on emerging data and events Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank 

    13:16 (IST)08 Oct 2021
    RBI eyeing rate increase in next meet?

    The RBI was clear about the fact that it would be careful of not rocking the boat in any way. RBI Governor went to the extent of pointing out that we are close to the shore but there is a life beyond the shore too. In my opinion, the glide path has been initiated with the G-sec bond buying programme dialed back to NIL, and the Variable Reverse Rate Repo (VRRR) auction size enhanced to INR 6 trillion by early December. The RBI also has opened itself up to increasing the VRRR duration to 28 days if need be. The actions on liquidity is expected to bring up the overnight money market rates to above the current reverse repo rate of 3.35% and we think that  RBI will then be open to adjusting the Reverse repo rate to reduce the size of the corridor. Overall, we think that RBI has kept the room open for a reverse rate repo increase in the upcoming December policy. No changes are envisaged to the Repo rate in the current fiscal and can only be addressed in FY 2022-23 after a thorough understanding of the evolving growth-inflation mix.

    ~ Indranil Pan, Chief Economist - YES BANK on the RBI Monetary policy

    12:55 (IST)08 Oct 2021
    Hinting at a tax cut?

    "Efforts to contain cost-push pressures through a calibrated reversal of the indirect taxes on fuel could contribute to a more sustained lowering of inflation and an anchoring of inflation expectations," said RBI Governor Shaktikanta Das today. 

    12:46 (IST)08 Oct 2021
    No changes envisaged to the Repo rate in the current fiscal

    The glide path has been initiated with the G-sec bond buying programme dialed back to NIL, and the Variable Reverse Rate Repo (VRRR) auction size enhanced to INR 6 trillion by early December. The RBI also has opened itself up to increasing the VRRR duration to 28 days if need be. The actions on liquidity is expected to bring up the overnight money market rates to above the current reverse repo rate of 3.35% and we think that  RBI will then be open to adjusting the Reverse repo rate to reduce the size of the corridor. Overall, we think that RBI has kept the room open for a reverse rate repo increase in the upcoming December policy. No changes are envisaged to the Repo rate in the current fiscal and can only be addressed in FY 2022-23 after a thorough understanding of the evolving growth-inflation mix. Indranil Pan, Chief Economist – YES Bank

    12:44 (IST)08 Oct 2021
    RBI reassures markets that monetarily policy normalization will be gradual, calibrated

    RBI policy is a " Mai Ho Naa" policy aimed to achieve multiple objectives. Keep Growth Supported, Inflationary expectations under check, Financial Markets stable, Liquidity adequate and appropriate, Yield Curve in shape and ensure smooth passage of Govts borrowing Program. They have reassured the markets that monetarily policy normalization will be gradual and calibrated. Nilesh Shah, Group President & MD, Kotak Mahindra Asset Management Company

    12:43 (IST)08 Oct 2021
    Demand for homes likely to continue to gain momentum

    The decision to maintain the repo rate and reverse repo rate by the RBI is in line with expectations. It has also affirmed to its accommodative stance, which will provide stability to the markets and give much-needed liquidity. This status quo will further allow demand creation including for high involvement products like real estate. RBI's resolve to keep easy system liquidity and low interest is key to the recovery of the real estate industry and the overall economy. The real estate sector is expected to continue benefiting from the pass-through of low benchmark lending rates to end consumers, especially in the residential segment. The optimism of RBI regarding economic growth is welcome; It will also help in sustaining economic stability as well as keep the real estate sector stay afloat during these unprecedented times. The demand for homes is likely to continue to gain momentum going forward. Ram Raheja, Director, S Raheja Realty Pvt Ltd

    12:34 (IST)08 Oct 2021
    Equity markets relieved temporarily by the dovish tone

    The MPC meet outcome on Oct 08 was largely on expected lines, though sounding a bit dovish. The RBI seems to be following the other central banks by first trying to reduce liquidity (by abandoning GSAPs and announcing VRRR calendar). It also cut inflation projection for FY22 by more than the street expectations to 5.3%.  Though it has not hinted at hike in rates, reverse repo rates could be hiked in December meet, signaling the start of policy normalization. The equity markets are relieved temporarily by the dovish tone but will be aware of the rate hike possibilities going ahead. Deepak Jasani, Head of Retail Research, HDFC Securities

    12:30 (IST)08 Oct 2021
    Expect RBI to pursue faster normalisation through a back-loaded hiking cycle

    Governor Das and the MPC’s statement maintained an accommodative bias, but we note signs that the RBI is preparing the ground for a very modest exit from its highly accommodative policy stance. In our view, the decision to shelve the bond purchase program and maintain only its “twist” operations as a yield-signalling tool suggest the RBI is setting the stage for a gradual exit from very accommodative liquidity conditions. We continue to expect the RBI to pursue faster normalisation through a back-loaded hiking cycle, once it is sure the economic recovery will be sustained. This should keep the RBI on track to raise the reverse repo rate from the December MPC, and we continue to look for repo rate hikes in Q2 22, most likely at the April MPC. Rahul Bajoria, Chief India Economist

    12:24 (IST)08 Oct 2021
    Accommodative policy must be well complemented by strong corporate earnings

    The RBI kept key policy rates unchanged, policy stance accommodative was on expected lines. The central bank has stuck to its stated promise of keeping system liquidity excessive to help growth. The excess liquidity will help address the anemic growth in credit offtake. RBI retaining its GDP growth forecast for FY22 at 9.5% is a sentimental booster and the CPI forecast for fy22 lowered to 5.3% from 5.7% earlier despite high crude prices will help address any concerns on rising inflation. An accommodative policy by the RBI should be well complemented by strong corporate earnings, a high pace of vaccination, and a steady pace of economic growth. Nish Bhatt, Founder & CEO, Millwood Kane International 

    12:19 (IST)08 Oct 2021
    No policy reversal in the immediate future

    The announcement by the Monetary Policy Committee brings in no surprises.  As expected by BWR, the MPC has kept the repo and reverse repo rates unchanged.  While continuing with the accommodative stance with 5-1 vote, it has signalled the end to continued monetary easing by announcing a calendar for Variable Rate Reverse Repo (VRRR) and a proposal for fortnightly 14-day VRRR auctions. It has continued with the earlier projections of GDP at 9.5% for FY22 but has reduced the inflation rate from the earlier estimate of 5.7% to 5.3%, mainly by reducing the projected inflation in the second and third quarters from 5.9% and 5.3% to 5.1% and 4.5%, respectively. With greater restraint on the inflation front, the MPC has decided to support growth by continuing with the status quo. With growth concerns continuing in contact intensive sectors and with the commercial credit by the banking system continuing to be tepid, we do not expect policy reversal in the immediate future. M Govinda Rao, Chief Economic Advisor, Brickwork Ratings

    12:17 (IST)08 Oct 2021
    Enough liquidity will be made available to support growth: Das

    RBI Governor Shaktikanta Das in a presser said that enough liquidity will be made available to support growth and financial markets

    12:15 (IST)08 Oct 2021
    Liquidity VRRR auction calendar till December is a welcome move

    The liquidity VRRR auction calendar till December is a welcome move which definitely gives further clarity on the liquidity tapering front. If the Fed’s stance in Nov goes as expected, then December could be the time the RBI finally begins to reduce the gap between the repo and reverse repo rates. In sum and substance, this times policy didn’t throw any curveballs, hence was well received by the market. Jimeet Modi, Founder and CEO Samco Group

    12:07 (IST)08 Oct 2021
    Media interaction starts

    RBI Governor Shaktikanta Das begins media interaction

    12:05 (IST)08 Oct 2021
    Guv Shaktikanta Das' interaction with media to begin shortly

    RBI Governor Shaktikanta Das to begin interaction with media shortly

    11:57 (IST)08 Oct 2021
    RBI may keep repo rates unchanged in next policy meet

    All in all the MPC meeting was in line with our and the street’s expectations as the RBI has given a clear roadmap for normalization of liquidity conditions. While we expect the RBI to remain on hold in the next MPC meeting as well, sustained increase in energy prices due to the ongoing energy crisis is the key risk to the RBI's inflation forecast and may force the RBI to raise interest rates in H1CY2022. However, energy prices normalizing over the next few months will give the RBI more elbow room to keep rates at current levels for a longer period of time. Jyoti Roy, DVP- Equity Strategist, Angel One

    11:54 (IST)08 Oct 2021
    Ombudsman for NBFCs will help strengthen the grievance redressal mechanism

    The central bank kept the key rates and policy stance unchanged for the 8th time in a row thus allaying concerns around a possible unwinding or availability of adequate liquidity. The overall recovery especially in the services and the technology-driven sectors coupled with inflation being well within RBI’s comfort levels helped the central bank stay with the current excess levels of system liquidity.  This should help boost economic growth, credit offtake and is a big sentiment booster for the bond market. The ombudsman for NBFCs will help strengthen the grievance redressal mechanism and lead to a speedy resolution. Vikash Khandelwal, CEO, Eqaro Guarantees

    11:52 (IST)08 Oct 2021
    RBI may let increased credit offtake, high CIC to reduce liquidity surplus

    Markets are still assuaged that no premature tightening of financial conditions will happen and the orderly government borrowing and evolution of YC will be ensured. While the tenor and quantum of VRRR have increased, RBI has moved a step ahead by reducing further active liquidity infusion by not announcing new GSAP calendar after sterilising earlier two instalments with a simultaneous sale of bonds (OTs). While GSAPs may discontinue or get shallow and sterilized ahead, other tools like (1) possible higher intervention via the FX forwards route, and (2) partly rolling over its maturing forwards book. will remain preferred tools for liquidity management ahead. We do not see the RBI deploying any direct tightening tools like MSS, CRR hikes, FX swaps or outright OMO sales in the coming quarters. Instead, we expect the RBI to let natural stabilizers like increased credit offtake and high CIC etc. to reduce the liquidity surplus. Madhavi Arora, Lead Economist, Emkay Global Financial Services

    11:37 (IST)08 Oct 2021
    Internal Ombudsman Scheme to strengthen the internal grievance redress mechanism of NBFCs

    RBI governor has kept the repo rate unchanged at 4% and the reverse repo rate continues to be 3.35%. Also, Governor said the policy stance continues to remain “accommodative” against expectations. MPC has revised FY22 CPI inflation to 5.3% from 5.7%. and has retained an FY21 GDP growth forecast of 9.95%. Governor Das said that the need for undertaking further G-SAP operations does not arise, which will reduce liquidity. We expect the policy will be benefited for market and Banks will show good performance also NBFC stocks will perform as RBI has been decided to introduce the Internal Ombudsman Scheme to further strengthening the internal grievance redress mechanism of NBFCs. Rahul Sharma, Co-Founder, Equity99

    11:33 (IST)08 Oct 2021
    RBI is confident of enabling economic growth

    We are evidently in a much better place compared to the last year owing to the proactive measures taken by the government which is resulting into achieving stability in the economic fundamentals of the country. Furthermore, this will positively impact the housing sales in the upcoming festive season and the RBI is confident of enabling economic growth with the measures taken. Rohit Poddar, Managing Director, Poddar Housing and Development

    11:16 (IST)08 Oct 2021
    A strong demand for real estate expected to continue in festive season

    The RBI has always taken a proactive stance to ensure liquidity in the past few months since Covid. It is imperative that low mortgage rates would continue for at least some more time now or maybe until the end of the year. The end-user interest has increased mostly due to the all-time low home loan interest rate regime which has provided the required fuel for the growth of the economy along with the real estate industry with which several other allied sectors are linked. Apart from the low-interest rates, the consumers' realization of owning a home along with key policy measures have been the growth drivers for the real estate sector in the past few quarters and the strong demand is expected to continue in the festive season as well. Sandeep Runwal - Managing Director, Runwal Group and President Elect, NAREDCO Maharashtra

    11:14 (IST)08 Oct 2021
    All-time low interest rates given a boost to real estate sector

    RBI maintaining status quo on key policy rates was expected to maintain the financial stability before the festive season. The all-time low interest rates have already given a boost to the real estate sector upticking the demand in the last few quarters and enhancing the confidence of the homebuyers. It has also helped the sector to regain its strength as well as stay afloat during these unprecedented times. The Government's favourable policy measures along with festive deals will help sustain the demand during the festive season. Shraddha Kedia-Agarwal, Director, Transcon Developers

    11:09 (IST)08 Oct 2021
    Retail inflation likely to fall

    What is also important is that the RBI has reduced its forecasts for the headline inflation to 5.3% from 5.7% in FY22 based on the current moderation in the liquidity trajectory. While food inflation is expected to remain low, we believe there is a case to monitor inflation very closely over the next few months given the continuing commodity price pressures, industrial raw material shortages and the impending recovery in consumer demand. Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research

    11:08 (IST)08 Oct 2021
    Short term yields to inch up over next 1-2 quarters

    The G-SAP program to purchase govt securities from the market has been ceased for now to ensure that there is no further infusion of liquidity. The plan is to reduce the surplus system liquidity from the current high levels to around Rs 2-3 Lakh Cr by the end of the current quarter. Although RBI has clarified that these measures can’t be construed as liquidity tightening measures, we believe these are early steps towards the normalisation of the highly accommodative policy. We expect short term yields to inch up over the next 1-2 quarters based on such a guidance. Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research

    11:08 (IST)08 Oct 2021
    RBI mulls introduction of a 28 day VRRR

    On expected lines, MPC has continued to reaffirm its commitment to an accomodative policy till we witness the emergence of a broad based and durable domestic economic recovery. While there has been no changes in any of the benchmark rates whatsoever, the central bank has indicated its willingness to make a ‘gradual’ adjustment to the excess liquidity in the monetary system which currently stands at over Rs 9 Lakh Cr. The existing 14 day VRRR auction will be stepped up with the auction amount set to increase by Rs 1-2 Lakh Cr over the next 2 months, reaching up to Rs 6 Lakh Cr by Dec’21. Further, RBI may also consider introduction of a 28 day VRRR, if necessary to further calibrate the liquidity levels. Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research

    11:03 (IST)08 Oct 2021
    Indian economy continues to be resilient

    RBI has taken an extremely balanced approach, given that the Indian economy continues to be resilient but the aggregate demand has still not reached the pre-pandemic levels. The easing of food inflation has been a major consideration especially with record production of kharif food grains along with decreasing risks of new COVID wave and high rate of vaccinations. While inflation will remain a major area of concern, especially given the increase in energy prices across the globe, the focus is likely to be on sustaining growth till the time inflation remains below RBI’s forecast of 5.3% for FY-22. The Indian markets continue its bull phase and now focus will be on the global cues, especially the change in monetary policies of central banks of other major economies and unwinding the expansion of their balance sheets. Mohit Ralhan, Managing Partner & Chief Investment Officer of TIW PE

    11:01 (IST)08 Oct 2021
    Adequate liquidity and low interest rate key to sustain realty sector growth

    At this juncture we are favorably poised with an encouraging ramp up on vaccination rate across the country, ongoing festive season, and opening up of the country, the time is right to ensure an orbital shift for the industry. Significant and timely measures for a sector like real estate, which has strong linkages with several other industries, would translate into a significant push to overall economic growth of the country. Shishir Baijal, Chairman & Managing Director, Knight Frank India

    10:57 (IST)08 Oct 2021
    Homebuyers must immediately translate their plans into action

    RBI’s decision to continue with the accommodative stance by keeping the interest rates unchanged is a welcome move for the sector. The decision will induce optimism, encourage buyers’ confidence and propel pent-up housing demand. The pandemic has reinstated the importance of homeownership. Low-interest rates amidst the festive season, positive market sentiment and receding Covid-19 cases, together create a favourable condition for home-buying. To benefit from one of the best home-buying periods, homebuyers must immediately translate their plans in to action and avoid prolonging them further. Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani

    10:55 (IST)08 Oct 2021
    RBI not in a hurry to normalize liquidity conditions, reverse repo rate in near term

    The RBI policy, as expected, remained cautious and in a wait-and-watch mode. Even as it increased the quantum under the 14-day VRRR auctions and opened the option of 28-day VRRR auctions, it adequately sounded out on its dovishness and the need to ensure liquidity conditions remain comfortable. We do not see the RBI in a hurry to normalize liquidity conditions as well as the reverse repo rate in the near term. We continue to see the February policy as the earliest period of review for the RBI to narrow the policy rate corridor by raising the reverse repo rate. Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities

    10:53 (IST)08 Oct 2021
    RBI Guv Shaktikanta Das ends address by quoting Mahatma Gandhi

    As Mahatma Gandhi, whose birth anniversary we celebrated last week, had said: “to lose patience is to lose the battle".

    10:51 (IST)08 Oct 2021
    Internal Ombudsman for NBFCs

    With a view to further strengthening the internal grievance redress mechanism of NBFCs, it has been decided to introduce the Internal Ombudsman Scheme (IOS) for certain categories of NBFCs having higher customer interface.   

    10:48 (IST)08 Oct 2021
    PoS machines, QR codes to be geo-tagged

    To target areas with deficient PA infrastructure,  it is proposed to introduce a framework for leveraging geo-tagging technology for capturing exact location information on all existing and new PA infrastructure viz., Point of Sale (PoS) terminals, Quick Response (QR) Codes, etc.  

    10:47 (IST)08 Oct 2021
    IMPS per transaction cap raised from Rs 2 lakh to Rs 5 lakh

    Immediate Payment Service (IMPS) per transaction limit is proposed to be increased from Rs 2 lakh to Rs 5 lakh

    10:44 (IST)08 Oct 2021
    VRR auctions to be stepped up fortnightly from Rs 4 lakh crore to Rs 6 lakh crore

    Variable Reverse Repo (VRR) auctions to be stepped up fortnightly from Rs 4 lakh crore to Rs 6 lakh crore. RBI may complement the 14-day VRR auctions with 28-day VRR auction. Liquidity absorbed in the first week of December under fixed-rate auction to be Rs 2-3 lakh crore

    10:33 (IST)08 Oct 2021
    G-Sap addressing market concerns

    "G-Sec program has been successful in addressing market concerns and anchoring yield expectations in the context of the large borrowing programme of the government," Shaktiaknta Das said. He added that liquidity injected into the system in the first six months of the current financial year thought OMO, including G-SAP, was Rs 2.37 lakh crore.

    10:28 (IST)08 Oct 2021
    Committed to bring inflation near target

    "CPI inflation momentum is moderating, which favourable base effect in coming months could bring substantial softening in inflation," said RBI Governor Shaktikanta Das. The central bank expects CPI inflation for the year to be at 5.3%. He added that the RBI is committed to bringing inflation close to the target.

    10:24 (IST)08 Oct 2021
    Headline inflation influenced by select items

    Headline inflation continues to be significantly influenced by very high inflation in select items like petrol, diesel, medicines among others, Governor Shaktikanta Das said. 

    10:23 (IST)08 Oct 2021
    FY22 GDP growth forecast at 9.5%

    The RBI has maintained the FY22 GDP growth forecast at 9.5%. This includes 7.9% in Q2, 6.8% in Q2 and 6.1% in Q4. For Q1 FY23, at 17.2%.

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