RBI’s Monetary Policy Committee (MPC) keeps the status quo, continues to maintain an accommodative stance until necessary to mitigate the impact of the COVID-19 pandemic. The Marginal Standing Facility (MSF) rate and bank rates remain unchanged at 4.25%. Repo rate remains unchanged at 4%. Reverse repo rate also remains unchanged. Rural demand is expected to remain strong due to the normal monsoon forecast. The Real GDP is estimated at 9.5% in FY22, against the earlier forecast of 10.5%. Of this, Q1 is expected to be 18.5% (versus 26.2% forecast earlier), Q2 – 7.9% (8.3%), Q3 – 7.2% (5.4%), Q4 – 6.6% (6.2%). CPI inflation is projected at 5.1% for FY22. On a quarterly basis, CPI for Q1 is likely to be 5.2%, Q2 – 5.4%, Q3 – 4.7%, Q4 – 5.3%.
In May, money aggregates (M3) grew 9.9% y/y and bank credit grew 6% y/y. The committee is focussing on turning to equitable distribution of liquidity. It has been adopting a lot of proactive and pre-emptive approaches to revive growth in the economy. It has infused Rs 36,545 crore into the industry. Another operation under government securities 1.0 (G-sec) for Rs 40,000 crore worth of purchase will be conducted. Further, G-SAP 2.0 worth Rs 1.2 lakh crore will be taken in Q2 FY22 to support the market. It is opening a Rs 15,000 crore On-Tap Liquidity Window at a repo rate for contact intensive sectors. This will provide additional lending to the hospitality, bus operators, tourism, salons, aviation ancillary services. It is also actively engaging in the forex market to strengthen the financial system. The exchange rate is stable despite global spillovers. Forex reserves have risen to $598B. To support MSMEs, RBI is extending a special liquidity facility of Rs 16,000 crore to SIDBI. Under the Resolution Framework 2.0, the RBI will expand coverage of borrowers in the scheme of borrowers up to Rs 50 crore, from the earlier Rs 25 crore. It decided to permit authorized dealer banks to place margins on behalf of foreign portfolio investors (FPIs), and regional rural banks (RRBs) are now allowed to issue certificates of deposits (CDs) with an option to buy back the CDs. All issuers of CDs will be permitted to buy back their CDs before maturity, on certain conditions. Recent articles :Break the Stereotype; Buy High, Sell Higher. Key Highlights from RBI Governor's Speech On May 05th 2021
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