RBI Monetary Policy Highlights: MPC Keeps Rates On Hold; Liquidity Absorption Stepped Up
MPC Keeps Rates Unchanged
India's Monetary Policy Committee has kept interest rates unchanged with the repo rate staying at 4%.
However, one member voted for a change in stance. By a majority of 5-1, MPC voted to maintain an accommodative stance. Is JR Varma that member? It is likely.
At this stage continuous monetary, fiscal support is required to aid the "nascent and hesitant recovery," said RBI Governor Shaktikanta Das, adding that the committee is mindful of its mandate of anchoring inflation expectations.
Watch | RBI Governor Shaktikanta Das Speaks On MPC's Decisions
Easing Of Operational Parameters For Debt Restructuring
Finally, the RBI closes with some easing in the operational parameters prescribed under the one-time restructuring scheme.
The deadline to meet a set of benchmarks that companies had to meet has been extended by six months, the RBI said.
Taking note of the upcoming challenging transition away from LIBOR as a benchmark, the RBI has been engaging with stakeholders. Two steps were announced.
The RBI has said that export credit in foreign currency can be issued using any other widely accepted reference rate. Second, the RBI intends to provide guidance on restructuring of derivatives linked to LIBOR. Since the change in reference rate is a force majeur, it will not be treated as restructuring, the RBI said.
Alongside monetary policy, the RBI announced a separate set of measures intended to continue support to banks and borrowers.
The on-Tap TLTRO scheme deadline has been extended by another three months till Dec.31, 2021.
The marginal standing facility relaxation given to banks last year in March has also been extended till Dec, 31, 2021. This will provide comfort to banks on liquidity availability.
Variable Rate Repo Auctions Stepped Up
While the RBI will continue to maintain liquidity support, the central bank will step up variable reverse repo rate auctions. Governor Das went to great pains to explain that stepping up of these auctions is not tantamount to monetary or liquidity tightening.
The size of the fortnightly VRRR auctions has been raised to Rs 2.5 lakh crore from Rs 2 lakh crore earlier.
This should not be read as reversal of the central bank's accommodative stance, Das said.
'Exogenous And Temporary' Inflation
The MPC has raised its inflation projection for FY22 at 5.7% compared to 5.1% in the last policy.
RBI Governor Das said that the MPC decided to "look through" high inflation as most factors driving price pressures as seen as "exogenous and temporary".
Any action to curb inflation now could kill the "nascent and hesitant recovery," Das said. He added that while inflation may remain close to upper tolerance band in Q2 but should ebb in Q3.