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Thursday, June 24, 2021

RBI Monetary Policy: Key takeaways from RBI Governor Shaktikanta Das’ speech

RBI Monetary Policy 2021 takeaways: Reserve Bank of India (RBI) Governor Shaktikanta Das' announcements on repo rate, GDP growth, retail inflation, G-SAP 2.0, on-tap liquidity for contact-intensive sectors and more.

By: Express Web Desk | New Delhi |
Updated: June 4, 2021 6:45:52 pm
A security guard's reflection is seen next to the logo of the Reserve Bank Of India (RBI) at the RBI headquarters in Mumbai (Reuters)

Reserve Bank of India (RBI) Governor Shaktikanta Das announced the outcome of the bi-monthly RBI Monetary Policy Committee (MPC) meeting on Friday. The Indian central bank kept its key lending rates unchanged however it announced new measures that will help the economy which ailing from the impact of the second wave of COVID-19 to bounce back.

This was the first meeting of the MPC after the government data showed that the economy contracted 7.3 per cent in the previous financial year (FY21).

Here are the key takeaways of the RBI Governor Shaktikanta Das’ announcements:

RBI keeps its rates unchanged

The RBI MPC unanimously kept the repo rate unchanged at 4 per cent. The reverse repo rate too was kept unchanged at 3.35 per cent, while the marginal standing facility (MSF) rate and bank rate were also kept unchanged at 4.25 per cent.

RBI cuts FY22 GDP growth forecast to 9.5%

Shaktikanta Das announced that RBI cut its economic growth forecast for the current financial year 2021-22 (FY22) to 9.5 per cent from 10.5 per cent. It reduced the first quarter (Q1FY22) GDP forecast to 18.5 per cent from 26.2 per cent. It further estimated GDP forecast at 7.9 per cent in the second quarter (Q2FY22), 7.2 per cent in the third quarter (Q3FY22) and 6.6 per cent in the fourth quarter (Q4FY22).

RBI sees retail inflation at 5.1%

The RBI governor said that the central bank projects the retail inflation or CPI (Consumer Price Index) at 5.1 per cent during FY22. He said that the RBI predicts the CPI at 5.2 per cent in Q1, 5.4 per cent in Q2, 4.7 per cent in Q3 and 5.3 per cent in Q4 with risks broadly balanced.

RBI to buy G-Sec worth Rs 1.20 lakh crore under G-SAP 2.0

Das said RBI will go for another round of the Government Securities Acquisition Program (G-SAP). He said that the central bank under G-SAP 1.0 will purchase of G-Secs of  Rs 40,000 crore on June 17, 2021. Of this, he said that Rs 10,000 crore would constitute purchase of state development loans (SDLs).

Apart from this, the RBI decided to undertake G-SAP 2.0 in the second quarter of FY22 and conduct secondary market purchase operations of Rs 1.20 lakh crore to support the market.

He said that the specific dates and securities under G-SAP 2.0 operations will be indicated separately and added that he expects the market to react positively to the announcement.

On-tap Liquidity for contact-intensive sectors

Shaktikanta Das announced that the RBI will open a Rs 15,000 crore on-tap liquidity at repo rate for contact intensive sectors till March 31, 2022, with tenors of up to three years.

Under this scheme, banks can provide fresh lending support to hotels and restaurants; tourism – travel agents, tour operators and adventure/heritage facilities; aviation ancillary services – ground handling and supply chain; and other services that include private bus operators, car repair services, rent-a-car service providers, event/conference organizers, spa clinics, and beauty parlours/saloons.

The RBI governor said that by way of an incentive, the banks will be permitted to park their surplus liquidity up to the size of the loan book created under this scheme with RBI under the reverse repo window at a rate which is 25 bps lower than the repo rate or, termed in a different way, 40 bps higher than the reverse repo rate.

Special Liquidity Facility to SIDBI

The RBI decided to extend a special liquidity facility of Rs 16,000 crore to the Small Industries Development Bank of India (SIDBI) for lending to MSMEs, directly or indirectly over and above the quantum of Rs 50,000 crore that was set aside for government financial institutions in the April policy.

This facility will be available at the prevailing policy repo rate for a period of up to one year, which may be further extended depending on its usage.

Enhancement of the exposure thresholds under Resolution Framework 2.0

In order to provide further relief to the businesses hit by second wave of COVID-19, the newly announced restructuring window has been extended for all for MSMEs, non-MSME small businesses and loans to individuals for business purposes with outstanding credit of Rs 50 crore.

Availability of NACH on all days of the week

The RBI governor announced that the National Automated Clearing House (NACH), which is a bulk payment system operated by the NPCI, emerged as a popular and prominent mode of direct benefit transfer (DBT) to large number of beneficiaries. He said that this service is presently available on bank working days, but it is proposed to be functional on all days a week from August 1, 2021.

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