KEY HIGHLIGHTS
Watch: RBI Governor Addresses Press Conference After MPC Decision
GST Revenues Are Showing Better Collections: Governor Das
- Good to note that GST revenues have come back and showing better collections
- Our concern as debt manager of the government is what the government's borrowing programme is
- We have to see the deviation from glide path in the context of the extraordinary situation the country is going through
- We have ensured the lowest borrowing cost for the government in the past
- Will be able to implement the borrowing programme in a non-disruptive manner in the future
Already Doing What An AQR Needs To Do: Governor Das
- Short of announcing an AQR, doing deep dive about true state of affairs of bad assets at NBFCs
- Already making assessment of true state of NPAs in each bank, have sense of overall situation
RBI Is Watchful Of Forward Premia, Says RBI Governor
Have taken measures in the past on forward premia when it becomes necessary
First Objective Is To Protect Domestic Market Against Global Spillovers: Michael Patra
- There is a hunt for yields globally
- Will ensure orderly function through our market operations
Seeing Growth Of Demand In Almost All Segments, Says RBI Governor
- Demand has moved beyond ‘pent-up’ phase to actual demand
- Demand curve is expected to be much more sustained
Have Held Discussions With Government On Bad Bank, Says RBI Governor
- Awaiting a formal proposal from government on bad bank
- Will examine such a proposal and come up with views
‘Retail Direct’ Will Not Affect Flow Of Deposits To Banks And Mutual Funds, Says RBI Governor.
Remember that Small Savings Scheme rate offer much higher rates than bank deposits
Despite that, deposits have grown 11.3% this year
As GDP grows, volumes of savings will expand
Sometimes the market takes a little more time to understand our communication
Over time we feel that the market has a better understanding
The liquidity guidance that we have provided could not have been more explicit
Will Focus On Governance In Overall Bank, NBFC Regulation
- NBFC discussion paper is out and we have called for comments
- Will take a decision on this regard as soon as we receive comments on discussion paper
Had Spoken About Normalisation When CRR Reduction Was Announced, Says Deputy Governor Michael Patra
- When CRR reduction was announced we had announced that it would normalised on March 27
- We went one step further and made it a phased process
- Withdrawal of liquidity through CRR will be replenished with other measures
- RBI is very conscious that borrowing programme of the government will need to be a smooth process
- This is why the HTM extension was provided
'Retail Direct' Is A Major Structural Reform, Says Governor
- Retail Direct is a major structural reform
- World-over very few countries have done that, we are the first in Asia
- It has been our endeavour to make the G-sec market accessible to retail investors
- Digital currency is a work in progress at the RBI
‘Retail Direct’ a paradigm shift that you and I can open direct accounts through e-Kuber system, says RBI deputy governor BP Kanungo.
- Retail investors were able to access the NDSO through an aggregator model
- Will be coming out with details very soon
It Is A Public Good To Manage The Yield Curve, Says RBI Governor
- G-sec yields are benchmark on which corporate bond market and all bonds are priced
- It is a public good to manage the yield curve
- Impacts a wider cross section of the financial market
- When banks are reducing their lending rates, part of it also goes to the savers
- Small savings scheme of the government is another avenue for small savers
Accommodative Stance Would Continue Well Into Next Year, Says RBI Governor
Have previously stated that accommodative stance would continue well into next year
Never spelt out June as the date when this guidance would end
Variable rate reverse repo auctions part of our toolkit
Overall liquidity remains the same, certain portion is taken within the 14 day reverse repo window
Bonds Sell Off As RBI’s Support Measures Disappoint
Indian sovereign bonds declined as the Reserve Bank of India’s measures to support the bond market fell short of expectations.
The yield on benchmark 10-year note rose four basis points to 6.11% after climbing to 6.15%, its highest since Aug. 28. Governor Shaktikanta Das refrained from announcing a bond purchase calendar to help the market absorb the government’s massive borrowing plan, though he assured that the central bank’s liquidity stance will continue to be accommodative.
Reserve Bank of India Governor Shaktikanta Das will now hold a press conference at 12 p.m.
Closing Remark
“Going forward the Indian economy is poised to move in only one direction which is upwards. It is our strong conviction backed by forecasts, that in FY22 we will undo the damage that Covid-19 has inflicated the economy. After the chaos and dispair of the year gone by through which we have sailed together, we shall continue to sail ahead.”
Integrated Ombudsman Scheme To Be Rolled Out By June 2021
- Decided to integrate three existing ombudsman schemes and provide a centralised scheme
- Integrated ombudsman scheme to be rolled out by June 2021
RBI Proposes To Provide Retail Investors Access To Government Bond Market
- Central government and RBI have taken several steps to encourage retail investment in government securities
- Proposed to provide retail investors access to government bond market, both primary and secondary, directly through the RBI
- Retail investors will now have direct access to participate in the G-Sec market
RBI Includes NBFCs In TLTRO Scheme; Decides To Restore CRR & More
Funds from banks under TLTRO on tap scheme to be provided to NBFCs for lending in specific stressed sectors
On a review of monetary and liquidity conditions it has been decided to restore CRR in two phases
CRR to be raised to 3.5% from Mar 27 and 4.0% from May 22
MSF relief facility for banks to be available for another 6 months till September
MSF relief provides increased access to funds to the extent of Rs 1.53 lakh crore
To extend dispensation of enhanced HTM of 22% up to March 31, 2023
To include securities acquired between Apr 1, 2021 and Mar 31, 2022 in HTM dispensation
The HTM limits will be restored to 19.5% in a phased manner starting from Apr-Jun 2023
To defer implementation of last tranche of capital conservation buffer of 0.625% and also defer implementation of the net stable funding ratio by another 6 months to October 2021
To permit resident individuals to make remitances to IFSCs for investment in securities for investment in instruments issued by non-resident entities in IFSCs
Forward Guidance
- Large government borrowing programme was managed seamlessly during April to December.
- Explicit forward guidance was an innovative feature in monetary policy.
- Maintenance of financial stability and orderly evolution of yield curve were explicitly regarded as public goods
- Convinced by RBI's communications and actions market players reacted synchronously
- On Jan. 11 money market rates firmed up on perceived misconception of RBI reversing accommodative money market stance
- The stance of liquidity management continues to be accommodative and completely in consonance with the stance of monetary policy
- Reserve money rose by 14.5% year on year on Jan. 29 led by currency demand; Money supply grew by 12.5% on Jan. 15
- A two-phase normalisation of the CRR needs to be seen in current context
- CRR normalisation opens up space for a variety of market options to inject additional liquidity
- Gross market borrowing of Centre is estimated at Rs 12 lakh crore
- Look forward to common understanding and cooperative approach between market participants and RBI in 2021-22
RBI Projects CPI Inflation At 5.2% In Q4 FY21
- After breaching upper tolerence threshold continuously, CPI inflation moved below 6% for first time in the post lockdown period, in December.
- Vegetable prices decline accounted for 90% of decline in headline inflation in November, December
- It is expected that vegetable prices will continue to remain soft in near term
- Petroleum product prices have reached historic highs on account recent surge in crude prices
- RBI projects CPI inflation at 5.2% in Q4 FY21
- RBI projects CPI inflation at 5.2-5.0% in first half of FY22
- RBI projects CPI inflation at 4.3% in Q3 FY22
Recovery Strengthens Since Last MPC Meet: Governor Das
- 2021 is setting the stage for a new economic era in the course of our history
- Signs of recovery have strengthened further since last MPC meeting
- High frequency indicators show that list of recovering sectors is increasing
- Consumer confidence is reviving
- Data for sales and new launches of residential projects reflect renewed confidence in real estate sector
- Vaccination drive is expected to provide impetus for restoration of contact-led services
- Ahead of a broader infra revival, speed of construction of highways is improving
- FDI and FPI has surges in recent months.
- Union Budget announcements to have a cascading multiplier effect.
MPC Leaves Repo Rate Unchanged At 4%
The Monetary Policy Committee has unanimously decided to keep the key repo rate and the reverse repo rate unchanged at 4% and 3.35% respectively, while continuing the accomadative stance for “as long as necessary”, Das said.
- For the first time since onset of Covid-19, inflation eased below 6%
- Preliminary estimates of GDP has turned out to be very close to MPC's December projection
Watch: RBI's Shaktikanta Das Announces MPC Policy
CPI Inflation: Relief At Last
Retail inflation fell sharply in December, led by a crash in vegetable prices.
With the drop, inflation fell back within the MPC’s target range of 4 (+/-2)% for the first time since March 2020. Inflation in December was at its lowest in 15 months, while inflation in food and beverages dropped to 16-month low of 3.87% in December.
This may provide some comfort to the MPC but not everyone believes it will be enough to seal a rate cut call.
Bond Market: Rising Yields
Should the MPC keep rates on hold, as most expect, the focus will be on the RBI’s liquidity policy. Higher-than-anticipated government borrowings of Rs 12 lakh crore in FY22 pushed up the benchmark 10-year bond yield to above 6%.
As Fiscal Policy Picks Up The Baton, RBI May Need To Stay Nimble: Sajjid Chinoy
As fiscal policy picks up the baton of reviving the economy and sustaining growth, monetary policy may need to pick between being complementary or a substitute so that “all guns are not blazing at the same time”, Sajjid Chinoy, chief India economist at JPMorgan told BloombergQuint's Ira Dugal.
India’s Monetary Policy Committee will meet for the last time this financial year, days after the central government presented its Union Budget for 2021-22. The budget pegged the fiscal deficit at a wider-than-expected 6.8% for the coming financial year, leaving the bond markets concerned about high government borrowings.
Reserve Bank of India Governor Shaktikanta Das is set to announce the MPC's policy decision at 10 a.m., followed by a press conference at 12 p.m.
A Bloomberg poll of 32 economists showed that five expected a rate cut while the remaining expected a status quo. The repo rate has been cut by 115 basis points since the Covid-19 pandemic hit in March.