RBI Governor Shaktikanta Das Press Conference: MPC Leaves Repo Rate Unchanged; To Normalise CRR In Two Phases

• 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

• 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

Have taken measures in the past on forward premia when it becomes necessary

• There is a hunt for yields globally
• Will ensure orderly function through our market operations

• Demand has moved beyond ‘pent-up’ phase to actual demand
• Demand curve is expected to be much more sustained

• Awaiting a formal proposal from government on bad bank
• Will examine such a proposal and come up with views

• 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

• 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

• 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
• 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

• 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

• 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

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.

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Reserve Bank of India Governor Shaktikanta Das will now hold a press conference at 12 p.m.

• Decided to integrate three existing ombudsman schemes and provide a centralised scheme
• Integrated ombudsman scheme to be rolled out by June 2021

• 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

• 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

• 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

• 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

• 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.

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

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.