Monetary Policy Statement, 2020-21 Resolution of the Monetary Policy Committee (MPC) February 3-5, 2021

The Monetary Policy Committee (MPC) met on 3rd, 4th and 5th February, 2021 and deliberated on current and evolving macroeconomic and financial developments, both domestic and global. The six-member Monetary Policy Committee (MPC) headed by Reserve Bank of India (RBI) Governor Shaktikanta Das voted unanimously to leave the policy repo rate unchanged at 4 per cent. The panel was headed by Mr Shaktikanta Das with other members of the panel: Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth R. Varma, Dr. Mridul K. Saggar and Dr. Michael Debabrata Patra.

MPC also unanimously decided to continue with the accommodative stance of monetary policy as long as necessary – at least through the current financial year and into the next year – to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward. The Marginal Standing Facility (MSF) rate and the Bank rate remain unchanged at 4.25 per cent. The reverse repo rate stands unchanged at 3.35 per cent.

KEY TAKEAWAYS from Monetary Policy:

- Key policy rates remain unchanged
- Repo rate unchanged at 4%
- Accommodative stance to continue for now
- Reverse repo rate unchanged at 3.35%
- 10.5% GDP growth outlook for 2021-2022
- RBI projects CPI inflation at 5.2% In Q4 FY21
- Funds from banks via TLTRO scheme now available to NBFCs
- Restoration of CRR in two phases beginning March 21
- RBI shall issue guidelines on outsourcing for digital payment system
- RBI to form expert panel to strengthen primary urban co-op banks

Highlights of what the RBI Governor said after the MPC review:

  MPC voted unanimously to leave repo rate, Reverse repo rate, MSF, Bank rate remain unchanged.
  Inflation outturns have turned out to be better than expected as CPI Inflation in the Jan-Mar quarter at 5.2% and CPI Inflation in H1 of FY22 seen at 5.0-5.2%. Bumper Kharif crop, rising Rabi sowing are indicative of stable food inflation.
  Outlook for core inflation is influenced by cost-pushed pressures.
  Active supply intervention contributed to lowering of inflation in December.
  Outlook on growth has improved significantly; GDP growth is projected at 10.5% in 2021-22.
  2021 is setting the stage for new economic era in our history.
  Need of the hour is to continue to support growth as the objective is to return the economy to a higher growth trajectory
  Signs of recovery has strengthened further, list of normalising sectors expanding.
  The policy stance remains accommodative as long as necessary.
  Electricity demand reflect broader normalisation of economic activity than in December.
  Saw renewed confidence in the real estate sector.
  Vaccination drive to provide impetus for restoration of contact intensive sectors.
  Speed of daily highway construction is rising.
  Flow of financial resources to commercial sectors is improving.
  Survey suggests further sequential improvement in loan demand.
  Budget has provided strong impetus for revival of health, infra sectors.
  Budget will reinvigorate domestic demand.
  Atmanirbhar stimulus given earlier has started working its way through.
  Projected increase in capex by govt augurs well for investment demand, improving credibility of quality of spending.
  Concerted policy action by both centre and state is critical to ensure that ongoing cost build up does not accelerate.
  Maintenance of financial stability, orderly evolution of yield curve was explicitly regarded as "public good".
  Stance on liquidity management continues to remain accommodative and in consonance with policy stance will ensure adequate liquidity in the system.
  Proactively took steps to insulate domestic markets from global spillovers.
  CRR normalisation opens space for other market operations to inject liquidity; to announces two-phase normalisation of CRR.
  Restoration of CRR to happen in two phases from March; decided to gradually restore CRR to 3.5% from March and then 4% from May 22nd.
  Financial stability at the core of RBI's objective.
  To ensure orderly completion of govt's market borrowing program for FY22.
  To include NBFCs under TLTRO on-tap scheme for incremental lending to stressed sectors.
  MSF facility to banks will be available till September.
  To extend dispensation of enhanced held-to-maturity (HTM) category under SLR to 22%.
  Banks will be allowed to deduct new credit to MSMEs from their NDTL.
  To defer implementation of last tranche of capital conservation buffer and implementation of MSFR by another 6 months.
  To come out with consultation paper to harmonise regulatory framework in microfinance space
  To allow retail investors to open gilt accounts with RBI (BBIIIGGG), to provide retail investors access to primary and secondary government securities market.
 To provide retail investors online access to gilts market via Retail Direct.
 Allowing retail investors together with HTM relaxation will facilitate smooth completion of govt's borrowing programme in FY22.
 Going ahead, Indian economy is poised to move in only one direction, that is upwards.
 In FY22, will undo damage that COVID inflicted on the economy.

Reactions and Expectations of Economists and Market experts:

  • Deepthi Mathew, Economist at Geojit Financial Services, said: “In the expected line, MPC kept the repo rate unchanged and maintained an accommodative stance. Though the Governor assured of more liquidity measures, an increase in the CRR can be seen as the first step towards the normalization of monetary policy. MPC also cautioned about the rise in inflation that could arise from cost-push pressures and rising petroleum prices.”
  • Anuj Puri, Chairman at ANAROCK Property Consultants, said: “As expected, the repo rate and the reverse repo rates remained unchanged while maintaining an accommodative stance. With consumer inflation still trending at the upper end of the apex bank’s band, and the policy repo rate also being substantially reduced by 115 basis points since February 2020, RBI kept the rates on hold, with an eye on how the inflation and the economic recovery pans out in the coming months… Certainly, the real estate industry always aspires for reduced interest rates. Housing demand is reviving, and this demand needs to be fostered. However, the RBI’s current stance is absolutely justified, given the unique circumstances. We are certain that rates will be adjusted favourably once the pandemicexigencies ease.”
  • Shishir Baijal, Chairman & Managing Director at Knight Frank India, said: “The decision to maintain the REPO and reverse REPO rate by the RBI is in line with expectations. While the recent moderation in headline inflation rate has lent comfort, RBI will be cautious of demand side inflation picking up as economic growth momentum picks up. Measures on enhanced bank funding window for NBFCs will also benefit the stressed sectors including real estate…As seen in the past few months, housing markets in the country have responded well to low home loan interest rate. Given the interlinkages of the housing market with other sectors of the economy, we believe that low interest rate for a sufficiently long period of time will help build a strong and broad-based demand momentum in the Indian real estate market.”
  • Joseph Thomas, Head of Research at Emkay Wealth Management, said: “The basis of the RBI policy remains accommodative, and it is reflected in the status quo with respect to the base rate – the repo rate is unchanged. But there is a strand of rationalization of excess liquidity, as is evident from the phased hike in the CRR for its restoration to 4%, the pre-pandemic level.”
  • Adhil Shetty, CEO at BankBazaar, said: “Low interest rates are critical to economic revival. Inflation also needs to remain within target. The RBI governor announced that for the first time since the start of the pandemic, inflation has eased below 6%… In October, banks were allowed to take three-year loans at the repo rate in order to finance stressed sectors. The banks could use this liquidity to invest in corporate bonds, commercial papers, and non-convertible debentures in these sectors. Now, the RBI has made the TLTRO On Tap facility available to NBFCs in order to ease the availability of credit in these sectors. This could have positive implications for the auto and real estate sectors since NBFCs heavily finance both these sectors and now more credit will be available for both retail customers intending to invest as well as for the manufacturers.”
  • Jimeet Modi, Founder & CEO Samco Group"The MPC has once again maintained the status quo by sticking to an accommodative stance on the interest rate front which is inline with expectations, however, there are a couple of major breakthrough decisions which have been taken to supplement a massive Government borrowing program. The RBI has opened its doors for retail investors to directly invest in Government securities online which will place them in direct competition to other banks for attracting retail savings deposits. The inflation estimates are a positive surprise and the expectation that the inflation will be well within the tolerance levels is also cheery for the markets and economy as a whole. Easing liquidity concerns for NBFCs is a welcome step while the normalization of CRR levels by end of this quarter signals that the RBI has given its reassurance that all will be well under control in FY 21-22."
  • Rajeev Radhakrishnan, CIO-Fixed Income, SBI Mutual Fund.

"Maintaining status quo on rates and stance was the expected outcome of the Policy Review. However, the lack of specific market intervention measures to ensure smooth absorption of the enhanced market borrowings remains the key disappointment from the fixed income market perspective. Providing retail investors a direct avenue to invest in Government securities is a welcome announcement from a longer-term perspective.

While the promise of additional liquidity infusion post the unwinding of the CRR cut in 2 phases by Q1 FY22 holds the promise of OMO interventions, the immediate market action is a fair reflection of market absorption capacity. In the absence of direct and more specific up front market intervention through OMO/Twist, the near term concerns remain of a gradual uptick in bond yields and continued uncertainty on the demand side as the borrowing program commences for FY22."

  • Krish Raveshia, CEO at Azlo Realty :

“As expected the MPC has kept rates unchanged for the fourth consecutive time after it cut rates in May 2020 and unleashed liquidity in the system to help growth. The accommodative policy stance is also unchanged to act on rates going forward if the need arises. RBI Governor projecting GDP growth over 10% for next year and easing CPI inflation is a big positive. RBI's resolve to keep easy system liquidity and low interest is key to the recovery of the real estate industry and the overall economy. The real estate sector is showing signs of recovery and needs government hand-holding. RBI's announcement on LRS will help boost remittance, NRIs have been huge investors in Indian real estate.”

  • Allowing retail investors to come into G-sec market is 'revolutionary', says DBS’ Taimur Baig

Please click on the following link to read : Monetary Policy Statement, 2020-21 Resolution of the Monetary Policy Committee (MPC) February 3-5, 2021Governor’s Statement, February 5, 2021


What is meant by accommodative stance?
An accommodative stance means that there is room for lowering of interest rates in the future to revive growth and demand in the economy.

Even as the central government and the central bank have worked for hand in hand to revive the economy and provide financial support, the economy still recovering from the covid-19 impact with rising cases. Inflation continues to be inching higher as well. Therefore RBI decided to remain status quo on the rates and await inflationary pressures to ease before it takes any action to fuel growth. RBI requires more headroom to deal with policy measures. Hence, the accommodative stance.

What does policy rates remain unchanged mean for you?

Interest rates are decided in consonance with the inflation in the economy.
MPC maintaining the repo rates at 4% means that the rate at which banks borrow money from the central bank remains as is. Generally, when RBI lowers the repo rate, commercial banks are supposed to lower interest rates they offer on loans given to you.

What is core inflation?
Core inflation excludes the calculation of volatile factors like fuel and food prices.

Fuel Prices

The RBI recognises the rise in fuel prices. The skyrocketing fuel prices coupled with high levels of indirect taxes on the product by both the Centre and the States remain a cause of concern. This warrants “concerted policy action’ by both governments to control cost-push pressures.


According to the MPC, metrics like consumer confidence, manufacturing and services, infrastructure, sales of residential units in metro cities are reviving. The vaccination drive has also provided an impetus for growth. Recently, upon completion of 10 lakh vaccinations, India became topped the list of speed in vaccinating its citizens.

The pace with which road and transport construction has picked has also caught the eye of the MPC.

Taking these and a few other factors into consideration the MPC has projected India’s growth for the next financial year at 10.5%. RBI’s projection is almost in-line with the estimate of 11% mentioned in the economic survey. (the projections are for real GDP)

What is real GDP?

Real GDP is a measure of a country’s gross domestic product after adjusting it for inflation.

Retail Investor Online Access to Gilt Securities

The RBI has taken several measures to expand the scope of financial markets. RBI will provide retail investors with online access to the government securities market – both primary and secondary – directly through the Reserve Bank (‘Retail Direct’).

This will benefit the economy and investors in the following ways:

  • Broaden the investor base.
  • Retail investors will now have enhanced access to participate in the government
    securities market.
  • This, along with a few other measures, will upset the government’s borrowing programme in 2021-22.

Source: ; Economic Times, Money Control, CNBC 18, Indian Express &


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