Top Five Takeaways From RBI's Latest Monetary Policy Announcements
RBI Policy highlights: Status quo on rates, clarity on approach to growth and inflation, longer deadline for recast parameters.
India's Monetary Policy Committee left key policy rates unchanged for the seventh straight meeting. The committee maintained an accommodative stance, with MPC member JR Varma dissenting. The central bank assured that it remains in "whatever it takes mode" as the economy continues to face uncertainty from the Covid-19 pandemic.
Here's a look at the top five takeaways from the RBI and MPC policy review.
Supporting The Nascent, Hesitant Recovery
Calling the recovery "tentative" and "nascent" and inflation "exogenous" and "largely temporary", the MPC and the central bank laid the path for continued monetary policy accommodation.
The committee guided that the "accommodative stance would be maintained as long as necessary to revive and sustain growth on a durable basis, while ensuring that inflation remains within the target going forward".
Read more here.
Bond Market Reacts
Shorter-dated bonds declined after the dissenting vote on policy stance. The yield on the 5.63% bond maturing in 2026 rose as much as 10 basis points to 5.81%, before paring gains. The benchmark 10-year yield was up three basis points to 6.24%.
The RBI also decided to increase the size of variable rate reverse repo auctions but reiterated that this should not be seen as a reversal of the accommodative monetary policy stance.
Read more here.
Explaining Approach To Post-Pandemic Growth, Inflation
While addressing the press after announcing the MPC decision, RBI Deputy Governor Michael Patra explained how the central bank was viewing growth and inflation in the post pandemic world.
On inflation, Patra explained that a "cold turkey" approach would not work to control inflation. The regulator would instead focus on spreading disinflation over a two to three year period.
On growth, Patra said the regulator is benchmarking the level of activity to the pre-pandemic year rather than just looking at base-effect distorted year-on-year growth rates.
Read more here.
Easing Deadline For One-Time Debt Recast
The RBI has decided to provide more time to corporate borrowers to meet certain financial benchmarks.
An extension has been provided for four specific operational parameters including total debt-to-Ebitda ratio, current ratio, debt service coverage ratio and average debt service coverage ratio. The deadline has been extended to Oct. 1, 2022 from March 31, 2022.
The parameters were set by a committee headed by veteran banker KV Kamath. Read more here.
Transition Away From Libor
The RBI continues to try and manage a difficult transition away from Libor.
It made two announcements in this regard.
Banks can extend export credit in foreign currency using any other widely accepted alternative reference rate in the currency concerned.
Change in reference rate from Libor/Libor-related benchmarks to an alternative reference rate will not be treated as restructuring, the regulator said.
Read more here.