RBI Monetary Policy: Top 10 Takeaways
Within days of the Union Budget 2021 presentation, the Monetary Policy Committee met and decided to keep key interest rates unchanged. These are the key takeaways from the MPC resolution and announcements made alongside by the Reserve Bank of India.
Policy Rates Unchanged
The Monetary Policy Committee voted unanimously to keep the repo rate unchanged at 4% for the fourth straight meet since May. The central bank that controls the reverse repo rate separately decided to keep it unchanged at 3.35%.
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CRR Normalisation In Two Steps
While keeping rates unchanged, the RBI decided to reverse the Cash Reserve Ratio cut announced in March 2020 after the Covid-19 crisis hit. RBI Governor Shaktikanta Das said the normalisation of CRR will leave space for the central bank to put other liquidity management tools to work.
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Direct Investment In Government Bonds
Retail investors will now have greater access to the government bond market via a new direct investment option being offered by the central bank.
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NBFCs Included In TLTRO
The Reserve Bank of India will allow banks to extend credit to non-banking finance companies under the targeted long-term repo operations scheme. This will help provide liquidity to NBFCs.
RBI Projects FY22 Real GDP At 10.5%, CPI Inflation At 5.2% In Q4 FY21
Growth is recovering, and the outlook has improved significantly with the rollout of the vaccine programme in the country, the Monetary Policy resolution said. The recovery, however, is still to gather firm traction and hence continued policy support is crucial.
In its resolution, the MPC said the sharp correction in food prices has improved the food price outlook, but some pressures persist, and core inflation remains elevated. An unwinding of taxes on petroleum products by both the centre and states could ease the cost push pressures with pump prices of petrol and diesel at historic highs.
Key highlights from the the RBI Governor’s media conference.
Central Bank Digital Currency
Digital currency is a work in progress at the RBI, said Governor Das. Elaborating on that, RBI Deputy Governor BP Kanungo said a digital currency is still on the drawing board. You will hear from RBI very soon on digital currency, he added.
The RBI has held discussions with government on bad bank. It is awaiting a formal proposal from government on bad bank and will examine such proposal and come up with views.
The Economic Survey had last week recommended a second asset quality review of banks. Responding to a question on whether the RBI was considering this, Das said the regulator was already doing an independent assessment of the actual state of non performing assets that banks have as part of the supervisory process. Impact of the standstill on asset classification and that of Covid-related resolution process is constantly being shared with RBI, he said.
The governor reiterated that three proposals have been received and they are currently under consideration.
The RBI had recently published a discussion paper on NBFC regulation. When asked about the timeline for a new regulatory architecture, Das said a decision will be taken once comments are received and considered.