RBI Monetary Policy: Key takeaways from announcements made by Governor Shaktikanta Das

The Reserve Bank of India (RBI) on Friday announced its decision to keep benchmark rates unchanged while retaining its GDP growth forecast for the economy at 9.5 percent for FY22. The central bank however raised its inflation forecast to 5.7 percent from 5.1 percent for the current financial year.

The need of the hour is not to drop our guard and to remain vigilant against any possibility of a third wave especially in the background of rising infections in certain parts of the country,” said Das in a virtual address to the media.!!!!!
     Here are the highlights from his address:
  • MPC has decided to leave repo rate unchanged at 4 percent and reverse repo rate at 3.35 percent
  • MPC voted unanimously to leave policy repo rate unchanged
  • MPC voted with 5:1 majority to continue with ‘accommodative’ stance for as long as necessary to support growth
  • Cannot drop our guard, need to remain vigilant against a possible third wave of coronavirus
  • Economic activity has broadly evolved along MPC expectations
  • Monsoon has revived after a brief hiatus
  • CPI inflation surprised on the upside in May; price momentum moderated
  • Outlook for aggregate demand is improving but underlying conditions still weak
  • More needs to be done to restore supply-demand balance in a number of sectors
  • Assessment is current inflation is transitory, driven by supply-side factors
  • Continued policy support from all sides required to nurture nascent recovery
  • ​Domestic economic activity has started to normalise with ebbing of coronavirus, phased reopening of economy
  • Robust outlook for agriculture sector to continue to support private consumption
  • Investment demand still anemic ​
  • Consumption, investment and external demand are on the path to regaining traction
  • External demand remains buoyant
  • Strong external demand is an opportunity for India
  • Real GDP growth projection retained at 9.5 percent for FY22
  • Q1 FY22 GDP growth forecast revised to 21.4 percent from 18.5 percent; Q2 projection revised to 7.3 percent from 7.9 percent; Q3 projection revised to 6.3 percent from 7.2 percent; Q4 projection revised to 6.1 percent from 6.6 percent
  • Supply-side drivers could be transitory
  • Preemptive monetary policy response at this stage will kill nascent recovery
  • Inflation may remain close to RBI’s upper tolerance band until Q2FY22
  • MPC has been given mandate to maintain annual inflation at 4 percent until March 2026 with upper tolerance of 6 percent and a lower tolerance of 2 percent
  • See CPI at 5.7 percent for FY22 vs 5.1 percent projected earlier
  • See Q2FY22 CPI inflation at 5.9 percent; Q3 inflation at 5.3 percent; Q4 inflation at 5.8 percent
  • Variable rate reverse repo (VRRR) was reintroduced in January 2021 after being kept in abeyance; seeing higher appetite for VRRR in recent auctions
  • Bid cover ratios have been much higher than total quantum being put up for auction
  • RBI to conduct fortnightly VRRR auctions of Rs 2.5 trillion, Rs 3 trillion, Rs 3.5 trillion, Rs 4 trillion over coming weeks
  • RBI to conduct 2 more GSAP auctions of Rs 25,000 crore on Aug 12, Aug 26
  • RBI has announced more than 100 measures to curtail Covid impact
  • Will continue to monitor measures still under implementation
  • Additional measures: Extension of deadline for on-tap TLTRO scheme by 3 months (until Dec 31, 2021); MSF relaxation extended by another 3 months (until Dec 31, 2021)
  • RBI has been engaged with banks, market bodies to take proactive steps
  • Decided to amend guidelines with respect to export credit in foreign currency;
banks advised that change from LIBOR will not be treated as restructuring
  • Deferral of deadline for achieving financial parameters under Resolution Framework 1.0 from Dec 2021 to Oct 1, 2022

1 thought on “RBI Monetary Policy: Key takeaways from announcements made by Governor Shaktikanta Das”

Leave a Comment

Your email address will not be published. Required fields are marked *