Updated: February 5, 2021 5:42:34 pm
RBI Monetary Policy 2021: The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) kept its repo rate unchanged at 4 per cent while maintaining an ‘accommodative stance’ as long as necessary at least through the current financial year to the next year, RBI Governor Shaktikanta Das announced on Friday.
The RBI governor announced that the decision was taken unanimously and added that the reverse repo rate too was kept unchanged at 3.35 per cent.
The central bank had slashed the repo rate by 115 basis points since late March 2020 to support growth. This is the fourth time in a row that the MPC decided to keep the policy rate unchanged.
The RBI had last revised its policy rate on May 22 in an off-policy cycle to perk up demand by cutting interest rates to a historic low.
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The central bank also sees FY22 GDP growth at 10.5 per cent. The RBI governor said that the inflation has eased below the level of 6 per cent. The outlook on growth has also improved significantly. He also said that the MPC judged that need for the hour is to continue supporting the growth. He added that the signs of recovery have strengthened further and list of normalising sectors is expanding.
This is the first MPC meeting after the presentation of the Union Budget 2021-22. The six-member MPC headed by RBI Governor Shaktikanta Das meets every two months to analyze the state of the Indian economy and inflation and address the monetary issues in the country. This month, it began the 3-day bi-monthly meeting on Wednesday, February 3.
Das said that the CPI projection is revised to 5.2 per cent for Q4 FY21 and CPI inflation is pegged at 5-5.2 per cent in H1 FY22.
The RBI Governor said “capacity utilisation in the manufacturing sector improved to 63.3 per cent in Q2 vs 47.3 per cent in Q1. FDI and FPI investments have surged in recent months, reposing faith in the Indian economy.”
Speaking on non-banking financial companies (NBFCs), Das said that the funds from banks though the TLTRO scheme will now available to NBFCs. He also said that the cash reserve ratio (CRR) will be restored in two phases to 3.5 per cent from March 27 and 4 per cent from May 22, 2021.
The RBI governor also said that the CRR normalisation will open up space for a variety of market operations.
The Indian central bank chief announced that the retail investors can now open gilt accounts with the RBI. Das also said that the retail investors can now access the primary and secondary government bond market. He also said that the resident individuals will be able to make remittances to IFSCs for the NRIs.
Shaktikanta Das announced an integrated ombudsman scheme for customer grievance redressal, which will be rolled out by June 2021.
Concluding his address, Das said that the Indian economy is poised to move only in one direction, that is upward.
Separately, in a press conference post the monetary policy announcement, Shaktikanta Das said that the central bank is awaiting a formal proposal from the government on the proposed Asset Reconstruction Company (ARC) for the management of NPAs. The government had proposed the creation of an ARC during the recent Budget 2021-22. “Government and RBI have discussed the idea of a bad bank. We will examine the formal proposal on the ARC once it is made,” he said.
During his virtual meet with journalists, the RBI governor also spoke about Punjab and Maharashtra Co-operative (PMC) Bank and said that three bids for the crisis-ridden lender have been received and evaluation is underway.
How economists and market experts reacted:
- Deepthi Mathew, Economist at Geojit Financial Services, said: “In the expected line, MPC kept the repo rate unchanged and maintained an accommodative stance. Though the Governor assured of more liquidity measures, an increase in the CRR can be seen as the first step towards the normalization of monetary policy. MPC also cautioned about the rise in inflation that could arise from cost-push pressures and rising petroleum prices.”
- Anuj Puri, Chairman at ANAROCK Property Consultants, said: “As expected, the repo rate and the reverse repo rates remained unchanged while maintaining an accommodative stance. With consumer inflation still trending at the upper end of the apex bank’s band, and the policy repo rate also being substantially reduced by 115 basis points since February 2020, RBI kept the rates on hold, with an eye on how the inflation and the economic recovery pans out in the coming months… Certainly, the real estate industry always aspires for reduced interest rates. Housing demand is reviving, and this demand needs to be fostered. However, the RBI’s current stance is absolutely justified, given the unique circumstances. We are certain that rates will be adjusted favourably once the pandemic exigencies ease.”
- Shishir Baijal, Chairman & Managing Director at Knight Frank India, said: “The decision to maintain the REPO and reverse REPO rate by the RBI is in line with expectations. While the recent moderation in headline inflation rate has lent comfort, RBI will be cautious of demand side inflation picking up as economic growth momentum picks up. Measures on enhanced bank funding window for NBFCs will also benefit the stressed sectors including real estate…As seen in the past few months, housing markets in the country have responded well to low home loan interest rate. Given the interlinkages of the housing market with other sectors of the economy, we believe that low interest rate for a sufficiently long period of time will help build a strong and broad-based demand momentum in the Indian real estate market.”
- Joseph Thomas, Head of Research at Emkay Wealth Management, said: “The basis of the RBI policy remains accommodative, and it is reflected in the status quo with respect to the base rate – the repo rate is unchanged. But there is a strand of rationalization of excess liquidity, as is evident from the phased hike in the CRR for its restoration to 4%, the pre-pandemic level.”
- Adhil Shetty, CEO at BankBazaar, said: “Low interest rates are critical to economic revival. Inflation also needs to remain within target. The RBI governor announced that for the first time since the start of the pandemic, inflation has eased below 6%… In October, banks were allowed to take three-year loans at the repo rate in order to finance stressed sectors. The banks could use this liquidity to invest in corporate bonds, commercial papers, and non-convertible debentures in these sectors. Now, the RBI has made the TLTRO On Tap facility available to NBFCs in order to ease the availability of credit in these sectors. This could have positive implications for the auto and real estate sectors since NBFCs heavily finance both these sectors and now more credit will be available for both retail customers intending to invest as well as for the manufacturers.”
- Amit Modi, Director at ABA CORP and President-Elect CREDAI-Western UP, said: “The RBI announcements have been very much on the expected lines, even though no measures were made for real estate and home buyers particularly in the Budget gone by. It would have been a relief, if some benefit were extended to the sector today, as the experts awaited it. The repo rate remains unchanged at 4%, however for the industry to revive we are still expecting some kind of stimulus from the Union government and RBI in its forthcoming policy meetings.”
- George Alexander Muthoot, Managing Director at Muthoot Finance, said: “RBI expectedly kept the policy rates unchanged and maintained accommodative stance. The governor’s emphasis on opening TLTROs to NBFCs had been mentioned for the first time, to support stressed sectors. This reiterates the systematically important role of NBFCs in India’s financial system in driving sustainable economic recovery and growth. MPC projected that Inflation is expected to remain in comfortable level. The Governor assured that the policy will remain pro-growth to support and drive economic recovery. The special support that is being given to MSMEs in credit extension reflects this assurance.”
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