IT Correspondent
New Delhi, June 4:
Reserve Bank of India (RBI) announced its bi-monthly monetary policy review as RBI Governor Shaktikanta Das read out second bi-monthly Monetary Policy statement for the current financial year, presented by the Monetary Policy Committee (MPC) on Friday.
RBI has projected India’s GDP growth at 9.5 per cent (slashed by 1%) for the ongoing Financial Year (FY) of 2021-2022. RBI has kept repo rate unchanged at 4 percent, sixth time in a row. The RBI reverse repo rate or RBI’s borrowing rate also remains unchanged at 3.35 percent. RBI has also maintained an accommodative monetary policy stance to support growth and kept inflation at the targeted level, RBI Governor Das disclosed.
India’s central bank’s bi-monthly policy came even as the second wave of COVID-19 pandemic has started to slow down due to the fall in daily number of cases. Friday’s policy statement came after RBI’s Monetary Policy Committee (MPC) started three-day deliberations on June 2.
In April, RBI had announced its first monetary policy of the ongoing financial year that commenced on April 1. Currently, the Repo Rate or the lending rate is at 4 percent and the reverse repo rate or RBI’s borrowing rate is at 3.35 percent. These rates were kept unchanged during April’s monetary policy review statement.
The MPC unanimously decided to keep policy rates unchanged while continuing with the accommodative policy stance as long as necessary to 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.
Key Takeaways: Policy rate retained at 4%, which is the lowest level in over a decade. The repo rate was last revised in May 2020 and thus this is the 6 th consecutive policy in which the RBI has maintained status quo. The forward guidance given by the RBI’s MPC, which was changed to “state-based” in April 2021 as against the “time based”, has been retained at a “state-based” guidance in the current policy amidst heightened uncertainty. RBI will ensure the availability of adequate funds to aid economic recovery.
Surplus liquidity conditions in the system to be maintained and sustained : Government Securities Acquisition Programme (GSAP) 2.0 of Rs 1.2 lakh crore has been announced for Q2-FY21. The last tranche of GSAP 1.0 will be worth Rs 40,000 crore of which Rs 10,000 crore would constitute purchase of State Development Loans(SDLs).
Special liquidity finance for SIDBI and on-tap Targeted Long Term Repo Operations (TLTRO) for the contact-intensive sectors has been announced for durable liquidity flow to these segments.
The inflation outlook in Q1-FY22 has been retained at the same level as the previous policy while there has been an upward revision since Q2-FY22. Upside risks to inflation include: persistent supply-side disruptions of the second wave while downside risks include high base-effect and progress of the monsoon. Rising trajectory of the international crude prices and surge in international commodities and logistics prices could keep core inflation elevated.
Economic growth outlook: GDP growth forecast has been revised downwards to 9.5% for FY22. There has been downward revision in the GDP growth for Q1 and Q2 of FY22 while there has been upward revision in Q3 and Q4. Positives include: upswing in exports (Mar-May 2021), adoption on pandemic working conditions by individuals and businesses, vaccination drives and forecast of normal monsoon. Downside risks include: increased spread of the virus in rural areas.
