The Reserve Bank of India kept the repo rate unchanged at 4% in the August bi-monthly monetary policy statement. The rate has remained untouched for the seventh straight meeting of the Monetary Policy Committee. The marginal standing facility rate & the bank rate at 4.25% and reverse repo rate at 3.35% remain unchanged, indicating that the central bank wishes to maintain accommodative stance as it appears to believe that a hasty withdrawal of monetary policy support could disturb the economic recovery that is taking shape. The MPC has taken the decision based on an assessment of the evolving domestic and global macroeconomic and financial conditions.
RBI Governor Shaktikanta Das said the RBI’s priority would be to promote growth within the framework of financial stability and that the RBI is rightly concerned that any departure from the present pro-growth monetary policy may kill the nascent and hesitant recovery.
The MPC has projected CPI inflation at 5.7 % during 2021-22. This consists of 5.9% in Q2, 5.3% in Q3 and 5.8% in Q4 of 2021-22 with risks broadly balanced. CPI inflation for the first quarter of 2022-23 is projected at 5.1%.
RBI has kept the GDP growth forecast for FY22 unchanged at 9.5%
Shaktikanta Das said on balance, the outlook for aggregate demand is improving, but the underlying conditions are still weak. Aggregate supply is also lagging below pre-pandemic levels. High-frequency indicators suggest that (i) consumption (both private and government), (ii) investment and (iii) external demand are all on the path of regaining traction.
Das said RBI has decided to conduct fortnightly variable rate reverse repo (VRRR) auctions of ₹2.5 lakh crore on 31 August 2021; ₹3.0 lakh crore on 27 August 2021; ₹3.5 lakh crore on 9 September 2021; and ₹4.0 lakh crore on 24 September 2021. It proposes to conduct 2 more auctions of ₹25,000 crore each on 12 and 26 August under G-SAP 2.0
The central bank said in the credit market, transmission to lending rates has been stronger for MSMEs, housing and large industries. Given the nascent and fragile economic recovery, it said it has decided to extend the on-tap TLTRO scheme till 31 December 2021.
To provide comfort to banks on their liquidity requirements, including meeting their Liquidity Coverage Ratio requirement, the Marginal Standing Facility relaxation is being extended up to 31 December 2021. This dispensation provides increased access to funds to the extent of ₹1.62 lakh crore and qualifies as high quality liquid assets (HQLA) for the LCR.
The RBI has decided to amend the guidelines related to (i) export credit in foreign currency and (ii) restructuring of derivative contracts. Banks will be permitted to extend export credit in foreign currency using any other widely accepted Alternative Reference Rate in the currency concerned. Since the change in reference rate from LIBOR is a “force majeure” event, banks are also being advised that change in reference rate from LIBOR/ LIBOR related benchmarks to an Alternative Reference Rate will not be treated as restructuring. Deadline for achievement of ‘Financial Parameters under Resolution Framework 1.0’ has been deferred. RBI’s focus on preservation of financial stability continues.