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December 08, 2021 / 08:24 PM IST

RBI Monetary Policy Highlights | Growth is overarching priority, won't lose sight of price stability: RBI Governor Shaktikanta Das

RBI Monetary Policy Highlights: In line with expectations, the RBI MPC keeps key rates unchanged. This is the ninth consecutive time since the rate remains unchanged

RBI Monetary Policy Highlights: The Monetary Policy Committee (MPC) on December 8 retained the key lending rate, repo, at 4 percent, and maintained its stance as "accommodative". Repo is the rate at which the Reserve Bank of India lends short-term funds to banks. This is the ninth consecutive policy meeting where the rate setting panel has maintained the key lending rate. The

MPC has also maintained the reverse repo rate at 3.35 percent and the MSF rate at 4.25 percent. The announcement came in the context of fresh threats from the Omicron variant. So far, India has reported over two dozen Omicron cases. This has forced several states to impose fresh travel restrictions. There is a fear that the Omicron surge will lead to a third wave of Covid-19 in the country.

The RBI has retained its GDP growth projection at 9.5 percent for FY22, but revised Q3FY22 growth estimate to 6.6 percent from 6.8 percent earlier. Das said that the emergence of Omicron has given rise to fears of further restrictions on travel and economic activity, which has led to "considerable uncertainty on growth dynamics" for the coming months. The governor said that the reduction in VAT of fuel will have direct impact on inflation, but price pressures may persist in the near term. However, the RBI expects headline inflation to peak in Q4FY22, after which it is likely to soften.

Here are the highlights of the RBI MPC announcement:

- RBI keeps repo rate unchanged at 4 percent

- Reverse repo rate also remains unchanged at 3.35 percent.

- The MPC voted unanimously 5:1 to maintain 'accomodative' stance.

- The marginal standing facility (MSF) has also been left unchanged at 4.25 percent.

- Projection for real GDP growth is maintained at 9.5 percent. The central bank has however revised its Q3FY22 GDP growth to 6.6 percent from earlier 6.8 percent, and cut Q4FY22 GDP to 6 percent from 6.1 percent. Meanwhile, the RBI has cut Q4FY22 GDP to 6 percent from 6.1 percent earlier; and FY22 CPI inflation target has been maintained at 5.3 percent.

- FY22 CPI inflation target maintained at 5.3 percent. The October-December CPI inflation target has been revised to 5.1 percent from 4.5 percent earlier; while January-March CPI inflation forecast has been revised to 5.7 percent compared to 5.8 percent earlier.

- The Q1FY23 GDP growth forecast has been retained at 17.2 percent; Q2FY23 GDP growth seen at 7.8 percent; Q1FY23 CPI forecast revised to 5 percent from 5.2 percent; and Q2FY23 CPI forecase seen at 5 percent.

- From January 2022, liquidity adjustment will be mainly via the Variable Reverse Repo Auction. Headline CPI inflation is expected to peak in Q4 and soften thereafter.

- Proposed return to normal dispensation under MSF Window, as the “RBI remains committed to our ‘accommodative’ stance to broaden growth impulses”.

- Financial conditions turning increasingly volatile and there is considerable uncertainty over growth-inflation dynamics, thus RBI will continue to rebalance liquidity conditions in a non-disruptive manner.

- The aim is to re-establish 14-day Variable Reverse Repo Rate (VRRR) as the main liquidity operation. The RBI is to absorb Rs 6.5 lakh crore in VRRR auction on December 17 and absorb Rs 7.5 lakh crore in VRRR auction on December 31.

- RBI retains flexibility to fine-tune liquidity operations. It will allow banks to make one-time pre-payment with respect to TLTROs announced.

- The RBI will release a discussion paper on charges on digital payments.

- It is to also launch Unified Payments Interface (UPI)-based Feature Phone Products.

- Further, UPI caps for gilts, retail and IPOs are to be enhanced to Rs 5 lakh

MPC notes that crude oil prices have eased, that consumption demand has been improving and rural demand is exhibiting resilience. Recovery in the Indian economy is gathering traction. Government consumption has picked up from October 2021.

"We hold strong buffer to manage global spillovers and inflation is broadly aligned with target. We are better prepared to deal with the invisible enemy – COVID-19. The domestic economic outlook is somewhat clouded by Omicron variant," said Governor Das.

Das said the recent tax cuts on petrol and diesel should help in crowding-in private investment. There has been significant deleveraging of corporate balance sheet. Government's focus on Capex should help in crowding-in private investment

Globally, economic activity levels are reaching pre-pandemic times, he believes.
  • December 08, 2021 / 02:31 PM IST

    RBI Monetary Policy Update | Reaction: Lakshmi Iyer, CIO – Debt & Head – Products, Kotak Mahindra Asset Management Company
    In what seemed like a close call, the RBI MPC chose to maintain status quo on key benchmark rates. No material changes to growth and inflation forecasts too. This suggests RBIs caution on the recent developments on the pandemic front. While 14-day VRRR amount has been increased in a graded manner, there seems to be no sense of urgency on RBI’s part to initiate any abrupt liquidity drain out measures. Bond markets should draw comfort from this decision and continue to trade range bound. Global cues to dominate the rate moves going forward.

  • December 08, 2021 / 02:27 PM IST

    RBI Monetary Policy Update | Reaction: Dhaval Ajmera, Director of Ajmera Realty & Infra India
    RBI maintaining status quo on rates augurs well for brining equilibrium in the demand-supply economics of the real estate industry. With low loan interest rate regime, the home sales velocity witnessed across key Indian cities will continue on upward trajectory. The stock markets are expected to remain buoyant and realty index will continue to advance with positive bias in the short to medium term. 
    The revision of GDP and inflation targets are seen to be milder than expectation. The upcoming discussion paper to make the digital payments more affordable is a positive take-away from Governor’s speech. The announcements related to digital payments can offer disruption and bring dynamism in financial inclusivity expedition in the country.

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  • December 08, 2021 / 02:17 PM IST

    RBI to work of PMC Bank resolution 'very quickly', says Governor Shaktikanta Das
    The Reserve Bank of India will act “very quickly” on the Punjab and Maharashtra Cooperative Bank resolution once it receives the feedback on the draft amalgamation scheme with Unity Small Finance Bank, governor Shaktikanta Das said on December 8. 
    The RBI has given the stakeholders time till December 10 for comments on the amalgamation proposal.  After examining the feedback, the draft would be sent to the government for the final approval, Das told media as he shared the outcome of the monetary policy committee meeting.
    The RBI has on November 22 placed in public domain a draft scheme for the amalgamation of Punjab and Maharashtra Cooperative (PMC) Bank and Unity Small Finance Bank (USFB). Read full here

  • December 08, 2021 / 02:11 PM IST

    RBI Monetary Policy Update | Reaction: Shishir Baijal, Chairman & Managing Director, Knight Frank India
    We welcome the decision of the MPC on maintaining status quo on the key policy rates as well as continuing its accommodative stance that has so far helped the Indian economy to beat the gloomy shadows of COVID – 19. 
    Most high frequency indicators have bounced back to pre-COVID levels; however, some slack in the economy remains. The low interest regime and adequate liquidity into the system is critical to further strengthen the domestic market.

  • December 08, 2021 / 02:03 PM IST

    RBI Monetary Policy Update | Reaction: Vikash Khandelwal, CEO, Eqaro Guarantees
    The RBI has maintained continuity in its accommodative stance by keeping the key rates unchanged.  While India has emerged as the fastest-growing major economy the RBI’s decision today will further support growth and hasten the economy’s return to normalcy. The central bank has been pushing for a stable policy regime as the economy recovers in aftermath of the pandemic.
    A phased unwinding of liquidity, stable energy prices, and the manner in which the government navigates through the pandemic will be key to growth in FY22 & FY23.

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  • December 08, 2021 / 01:56 PM IST

    RBI Monetary Policy: What market experts and economists are saying
    The MPC, in line with market estimates, today kept the repo rate unchanged at 4 percent and maintained its accommodative stance until there is sustained economic recovery. After the announcement by Governor Shaktikanta Das, markets remained upbeat and hit the day’s high, led by financials, information technology and real estate sectors. Let’s check out what market experts and economists feel about the outcome of the Monetary Policy meeting. Read full here

  • December 08, 2021 / 01:47 PM IST

    RBI Monetary Policy Update | Reaction: Rahul Bajoria, Chief India Economist, Barclays
    The RBI today paused the normalisation process that began in October and indicated it will maintain a growth-centric normalisation of policy. 
    However, the resilience of economic activity will keep the RBI on track to normalise its policy conditions in 2022.

  • December 08, 2021 / 01:42 PM IST

    RBI Monetary Policy Update | Reaction: Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities
    The policy was as expected and cautious on the uncertainty due to the Omicron variant. Also, the RBI continued with the liquidity normalisation on expected lines without any explicit signal of liquidity withdrawal. 
    The inflation estimates are also lower than what the markets are expecting. Broadly, the policy is more dovish-than-expected possibly given the uncertainty from the new Covid variant. 
    If the Omicron variant is benign, we expect reverse repo hike of around 20 bps possible in the February policy and tad more aggressive liquidity withdrawal.

  • December 08, 2021 / 01:29 PM IST

    RBI Monetary Policy Update | Market at 1 PM
    Benchmark indices extended the gains and trading near the day's high with Sensex rising above 800 points.
    The Sensex was up 865.96 points or 1.50% at 58499.61, and the Nifty was up 247.80 points or 1.44% at 17424.50. About 2228 shares have advanced, 774 shares declined, and 103 shares are unchanged. Read LIVE blog here

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  • December 08, 2021 / 01:21 PM IST

    RBI Monetary Policy Update | Reaction: Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank
    The MPC expectedly maintained status quo on the policy rates and stance. The rhetoric too has remained focused on maintaining durable growth as long as inflation remains well in check. 
    We continue to expect RBI to fine tune the surplus liquidity to manage rates and consequently provide guidance on the operating target rate shifting closer to the Repo rate. We retain our base case of reverse repo rate hike in February.

  • December 08, 2021 / 01:13 PM IST

    RBI Monetary Policy Update | Reaction: VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services
    Conceding that "there is considerable uncertainty in the growth-inflation dynamics" the MPC has again decided in favour of growth by contnuing with accommodative monetary stance and status quo in rates. 
    More importantly, the guidance also is dovish with no indications of a rate hikes in the immediate future. The CPI inflation projection for Q3 and Q4 of FY22 at 5.1% and 5.7% respectively is an indication of RBI's belief that higher food inflation is temporary, since it is caused by crop damages during unseasonal rains. 
    Also, the central bank believes that lower crude prices and reduced petrol and diesel prices will "mitigate the cost push build up". In brief, a pro-growth policy and very positive from the market perspective.

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