Here are the main highlights of today’s RBI monetary policy.
– MPC leaves the repo rate unchanged at 4%, Repo Repo unchanged at 3.35%
– MPC will continue to take an accommodative stance for as long as necessary to relaunch and support growth on a sustainable basis
– MPC voted unanimously to keep the repo rate unchanged
– The MPC voted 5: 1 to keep an accommodating position; Jayanth Varma voted against
Inflation outlook
– The CPI inflation forecast is raised to 5.7% for FY22 from 5.1% earlier
– CPI inflation at 5.9% in Q2 FY22 vs 5.4% earlier
– CPI inflation at 5.3% in Q3 FY22 against 4.7% earlier
– CPI inflation at 5.8% in Q4 FY22 vs 5.3% earlier
– CPI inflation seen at 5.1% in Q1 FY23
– The drivers of supply could be transient while the pressures of attracting demand remain inert
– A preventive monetary policy response at this point could kill the nascent and hesitant recovery
– Inflation may remain close to the upper tolerance band until Q2 FY22
– Inflationary pressures should ease in Q3 FY22 due to the arrival of the Kharif harvests
– The current assessment is that inflationary pressures are transitory and largely driven by unfavorable factors on the supply side
– Inflationary pressures are monitored closely and continuously
– MPC is aware of its objective of anchoring inflation expectations
– The outlook for aggregate demand is improving, but remains weak and clouded by the pandemic
Growth prospects
– Real GDP growth forecast for FY22 maintained at 9.5%
– Q1 FY22 GDP growth projection revised to 21.4% against 18.5% earlier
– GDP growth projection Q2 FY22 revised to 7.3% against 7.9% earlier
– GDP growth projection Q3 FY22 revised to 6.3% against 7.2% earlier
– Q4 FY22 GDP growth projection revised to 6.1% against 6.6% earlier
The nascent and hesitant recovery must be nurtured by fiscal, monetary and sectoral policy levers
National economic activity began to normalize with the ebb of the second wave and the gradual reopening of the economy
High-frequency indicators suggest consumption, investment and external demand are on the road to recovery
Companies were able to maintain healthy growth in sales, wage growth and profitability
Ecological activity has largely evolved according to the expectations of the MPC in June
The economy is recovering from the setback of the second wave
Activity is expected to accelerate with a gradual increase in vaccinations, strong and continued political support, dynamic exports
On liquidity
– Decided to conduct bimonthly VRRR auctions of Rs 2.5 lakh crore on August 13, 2021; Rs 3 lakh crore on August 27, 2021; Rs 3.5 lakh crore on September 9, 2021; and Rs 4 lakh crore on September 24, 2021
– Enhanced VRRR auctions should not be misinterpreted as a reversal of accommodative policy
– Propose to conduct two other auctions of Rs 25,000 cr each on August 12 and August 26, 2021 under G-SAP 2.0
Non-strategic measures
– TLTRO on-the-fly program extended by three months until December 31, 2021
– Marginal Standing Facility (MSF): extension of the flexibility period until December 31, 2021
– Changing the LIBOR benchmark rate to an alternative benchmark rate will not be treated as a restructuring
– Deadline for achieving financial parameters under resolution 1.0 extended from March 31, 2022 to October 1, 2022
