The Monetary Policy Committee (MPC) met on 4th, 5th and 6th August 2021. Based on an assessment of the evolving domestic and global macroeconomic and financial conditions and the outlook, the MPC voted unanimously to keep the policy repo rate unchanged at 4 per cent. The MPC also decided on a 5 to 1 majority to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, 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 also remains unchanged at 3.35 per cent.
The MPC met in the shadow of the two recent inflation trends above the tolerance band of inflation target, Das said, adding that economic activity has broadly evolved in line with expectations in June and the economy is recovering from the second wave. Monsoon is doing well and some high-frequency indications are picking up.
The Governor again reiterated that the RBI's priority would be "to promote growth within the framework of financial stability". The RBI is rightly concerned that any departure from the present pro-growth monetary policy may " kill the nascent and hesitant recovery. " The communication from the central bank augurs well for the continuation of the growth impulses in the economy," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Following are the Highlights of today's Monetary Policy:
- The MPC voted 5:1 to keep the 'accommodative' position for as long as it is needed to promote growth.
- CPI inflation surprised on the upside in May, according to the RBI Governor, but price movement has slowed.
- RBI maintains its 9.5 percent GDP growth objective for FY22 and raises its CPI inflation forecast for FY22 to 5.7 percent from 5.1 percent.
- Recent inflationary pressures have raised concerns, although the RBI Governor claims that they are only temporary.
- According to RBI Governor, the rate of immunization will accelerate broad-based recovery.
- The on-tap TLTRO plan of the RBI has been extended for another three months, until December 31, 2021.
- The Reserve Bank's secondary market G-sec acquisition scheme (G-SAP) has succeeded in anchoring yield expectations and evoking a strong response from market participants. On August 12 and 26, the RBI will run GSAP auctions.
- More than a hundred initiatives have been announced by the Reserve Bank to lessen the damage.
- Interest rates on market products such as corporate bonds, debentures, CPs, CDs, and T-bills have all decreased in the United States.
- Transmission to lending rates has been stronger for MSMEs, housing, and major sectors in the credit market.
- Recent inflationary pressures have raised concerns, but the current consensus is that they are transient and mostly driven by supply-side factors.
As the COVID-19 second wave fades, there is hope that by implementing suitable pandemic protocols and increasing vaccination rates, we will be able to withstand the third wave, if it occurs. As a country, we must be watchful and prepared to deal with any reappearance of the pandemic caused by more rapidly transmissible mutations of the virus, if it occurs.
All members of the MPC – Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth R. Varma, Dr. Mridul K. Saggar, Dr. Michael Debabrata Patra and Shri Shaktikanta Das – unanimously voted to keep the policy repo rate unchanged at 4.0 per cent.
All members, namely, Dr. Shashanka Bhide, Dr. Ashima Goyal, Dr. Mridul K. Saggar, Dr. Michael Debabrata Patra and Shri Shaktikanta Das, except Prof. Jayanth R. Varma, voted to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward. Prof. Jayanth R. Varma expressed reservations on this part of the resolution.
On the Liquity front Under the revised liquidity management framework announced on February 06, 2020, the Reserve Bank has been conducting 14-day variable rate reverse repo (VRRR) auctions as its main liquidity operation. With the commencement of normal liquidity operations, the VRRR, which was temporarily held in abeyance during the pandemic, has been re-introduced since January 15, 2021 and the initial absorption of ₹2 lakh crore has been rolled over in the subsequent fortnightly auctions.
RBI will conduct conduct fortnightly VRRR auctions of ₹2.5 lakh crore on August 13, 2021; ₹3.0 lakh crore on August 27, 2021; ₹3.5 lakh crore on September 9, 2021; and ₹4.0 lakh crore on September 24, 2021 to increase and support domestic demand.
The next meeting of the MPC is scheduled during October 6 to 8, 2021.
Please click on the following links to read: Governor’s Statement : August 6, 2021 & Monetary Policy Statement, 2021-22 Resolution of the Monetary Policy Committee (MPC) August 4-6, 2021
Source: rbi.org.in, Business Line, Livemint, Business Standard, Goodreturns.in