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RBI Monetary Policy LIVE Updates: Reserve Bank of India (RBI) Governor Shaktikanta Das said the MPC voted to maintain the repo rate at 4 percent and reverse repo rate at 3.35 percent. The accommodative policy stance will continue. The MPC maintained its Gross Domestic Product (GDP) growth forecast at 10.5 percent for FY22. The Monetary Policy Committee's policy announcement comes amid elevated inflation and surge in COVID-19 infections across the country.
Shaktikanta Das said, "rural demand remains buoyant and record agriculture production in 2020-21 bodes well for its resilience. Urban demand has gained traction and should get a fillip with the ongoing vaccination drive. The recent surge in COVID-19 infections, however, adds uncertainty to the domestic growth outlook amidst tightening of restrictions by some state governments."
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The MPC’s decision to pause and maintain an accommodative stance is along expected lines. However, it retained GDP growth projections for FY22 at 10.5% despite large stimulus in other countries and its potential impact on global growth. In this policy, the biggest announcement was GSAP 1.0 under which the RBI plans to buy government securities worth Rs 1trn in Q1FY22. Along with GSAP, the RBI also announced the extension of several liquidity facilities. Together, these measures are aimed at keeping financial conditions benign, ensure orderly evolution of the yield curve and supporting the nascent recovery.
Ms. Bekxy Kuriakose, Head – Fixed Income, Principal Asset Management
All members of RBI MPC decided to keep key rates unchanged and stance as accommodative and pledged to continue to sustain growth on durable basis. Some concern has been expressed on input cost pressures which can feed into inflation particularly commodity prices and logistic risks. However overall RBI indicated that there are both downward and upward pressures on inflation reflecting their stance that they likely do not see inflation as a major concern. In this backdrop the continuation of the FIT (flexible Inflation targeting) Regime for next 5 yrs is also seen as a validation of its success since past five years and gives a good measure of policy continuity.
"The monetary policy continues to be growth centric, despite the underlying upside risks to inflation. This is so as it believes that the inflation today is short-term in nature while growth has to protected for long term sustainability. Although the assurance of retaining the accommodative monetary policy stance to support growth reduces the likelihood of a rate hike at least in H1 FY22, it also rules out the likelihood a rate cut."
"The overall focus of the RBI is to make available adequate liquidity that it deems necessary for conduct of economic activity. Along with liquidity it is also striving to keep the cost of fund low by anchoring bond yields; and has indicated the scale of support to be extended towards this end. This is a positive as lower bond yields would facilitate higher borrowing by businesses."
Every single economist predicted status-quo in key policy rates on Wednesday. The markets too had factored in this possibility. But RBI GovernorShaktikantaDas had his plan readyto present a ‘dovish’ policy even without rate action.
The RBI policy announced onApril 7 offered the right liquidity guidance for financial marketsand assurance to lenders.To be fair, with inflation concerns remaining and growth scenario weak, the RBI could not have tinkered with the rates.Das and his team atMPC(monetary policy committee)had limited options before them in such a scenario.
Small payments bank can now allow individual customers to keep a balance of up to 2 lakh.
"With a viewto furthering the financial inclusion and to expand the ability of payments bank to cater to the growing needs of their customers, the current limit on maximum end of day balance of Rs 1 lakh is being increased to Rs2 lakh per customer with immediate effect," RBI governorShaktikantaDas said.
Aditi Nayar, Principal Economist, ICRA: "With the MPC forecasting the CPI inflationto average around 5.0% in FY2022, rate cuts seem to be ruled out, unless economic activity is severelydisrupted by the ongoing wave of Covid-19. At the same time, early rate hikes appear extremely unlikely, with inflation expected to remain below the 6% upper threshold of the MPC's newly renewed medium-term target range. Therefore, we maintain our view of an extended pause in the repo rate through 2021, with a low likelihood of an upward revision in the reverse repo rate over the next two quarters.
"By committing to continue the accommodative stance for as long as necessary to durably sustain growth , without providing any explicit timeframe, the MPC has clearly indicatedthat it will remain data dependent, going forward. While we anticipate that the MPC will take cues from the evolving scenario related to Covid-19 infections, mutations, and vaccinations, as well as their impact on localised restrictions, sentiment and growth, we expect it to remain suitably cautious, and continue the accommodative stance during H1 FY2022."
Real estate experts said that with the country witnessing a second wave with partial lockdowns being imposed across different states and cities, the apex bank has sought to maintain the status quo rather than get 'adventurous'.
The extension of the Targeted Long Term Repo Operations scheme by six months is also expected to ensure adequate liquidity in the form of housing finance to real estate developers and provide stability in the Covid-19 era, the experts said.
Rahul Bajoria, Chief India Economist at Barclays: "The RBI’s commitment to keep policy accommodative is a result of the tempering of upside risks to both growth and inflation. We think the effects of the resurgence of COVID-19 cases are likely to be limited and unlikely to derail the gradual normalisation of policy."
Shaktikanta Das:At the moment growth is not undermined due to rising COVID-19 cases. So far, current surge in infections will not impact growth as much as it did last year. Guidance on growth seems appropriate. At this point, have made reasonable assumptions.
