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RBI Monetary Policy Update

Author: Rushit Sejpal

August 06 2021 | Reading Time: 2 Minutes
Key Decisions:
  • Repo rate maintained at 4% for the seventh consecutive meeting.
  • Reverse repo rate remains at 3.35%.
  • Marginal standing facility rate and bank rate at 4.25%.
  • Accommodative stance to support growth within the framework of financial stability.
CPI and Real GDP Projections:
Projections FY22 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23
CPI 5.70% - 5.90% 5.30% 5.80% 5.10%
Real GDP 9.50% 21.40% 7.30% 6.30% 6.10% 17.20%
About CPI Inflation: 
CPI inflation increased to 6.3% in June after having risen by 207bps in May. In June, food inflation increased primarily due to a rise in prices of edible oils, pulses, eggs, milk, and prepared meals. Fuel inflation was in double digits during May–June as prices of LPG, kerosene, and firewood and chips surged. 

Source: RBI
Any action to reduce the rising inflation can halt the nascent and hesitant recovery.
RBI to hold G-Sec Acquisition Program (GSAP) auctions of Rs 25,000 crore each on August 12 and 26. GSAP has been successful in anchoring yield expectations.
About Real GDP:
The economic activity has picked up pace as some of the states eased lockdown measures. High-frequency indicators – e-way bills, toll collections, electricity generation, air traffic, railway freight traffic, port cargo, steel consumption, cement production, import of capital goods, passenger vehicle sales, two-wheeler sales – posted strong growth in June/July, reflecting adaptations to COVID-related protocols and easing of containment.
Regarding agriculture, the southwest monsoon has picked up in July. The cumulative rainfall up to August 1 was 1% below the long-period average. High-frequency indicators (notably tractor and fertilizer sales) are showing progress in the economy.
Industrial production increased in double digits y/y in May 2021, which was mostly due to base effects. However, it was still 13.9% below its May 2019 level.
The manufacturing purchasing managers’ index (PMI) had gone into contraction to 48.1 in June for the first time in 11 months, rebounded well into the expansion zone with a reading of 55.3 in July. 
Services PMI continues to remain in the contraction phase. However, there was a slight improvement in the reading with 45.4 in July from 41.2 in June.

Source: RBI

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