RBI Monetary Policy

Why in NEWS ?

• The Reserve Bank of India's Governor Shaktikanta Das announced the Monetary Policy Committee (MPC)'s decisions on 09 th October 2020

Background

• The newly-constituted MPC of the central bank began its three-day deliberations on October 7, amid speculation that it will maintain status quo on the benchmark lending rates in view of hardening inflation.
• The meeting of the six-member panel, earlier scheduled for September 29-October 1, was rescheduled after appointment of independent members was delayed.
• In its August meet, the MPC left the repo rate unchanged at 4% and reverse repo rate at 3.35%.
• Since February 2019, the MPC has cut repo rate by a steep 250 basis points.
• The RBI Governor also announced a host of new measures to be undertaken by the central bank

Major Announcements

• On expected lines, the Reserve Bank of India (RBI) on October 9, maintained a status quo on key lending rates and kept its policy stance 'accommodative’. The Monetary Policy Committee (MPC) of the RBI took a unanimous decision to keep the repo rate unchanged at 4% and reverse the repo rate at 3.35%.
• Growth outlook RBI underscored while COVID-19 remains a threat, the economy is showing signs of improvement.
• RBI sees FY21 GDP contracting by 9.5 %. PMI for September rose to 56.9; the highest since January 2012.
• Inflation projection The RBI said inflation will remain elevated in the September print, but ease gradually towards the target over Q3 and Q4.
• Liquidity measures :
• RBI said the focus of liquidity measures by the RBI will now include the revival of activity in specific sectors that have both backward and forward linkages, and multiplier effects on growth.
• The central bank will conduct special and outright bond purchases and announced on-tap TLTRO for Rs 1 lakh crore at 4% till March 2021.
• Besides, RBI will conduct OMO worth Rs 20,000 crore next week.
• The limit for Ways and Means Advances (WMA) for the centre has been kept higher at Rs 1.25 lakh crore compared to Rs 35,000 crore in the second half of the previous year. Similarly, the 60% increase in WMA limit for states in the first half of 2020-21 has been extended for a further period of 6 months till March 31, 2021.
• Additional measures: RBI announced certain additional measures intended to (i) enhance liquidity support for financial markets; (ii) regulatory support to improve the flow of credit to specific sectors within the ambit of the norms for credit discipline; (iii) provide a boost to exports; and (iv) deepen financial inclusion and facilitate ease of doing business by upgrading payment system services.
• SLR HTM limit extended: RBI extended the dispensation of the enhanced HTM (Held to Maturity) limit of 22 percent up to March 31, 2022, for securities acquired between September 1, 2020, and March 31, 2021.
• Review of the Co-origination Model: Based on the feedback received from stakeholders, it has been decided to extend the scheme to all NBFCs, including HFCs, in respect of all eligible priority sector loans, and allow greater operational flexibility to the lending institutions.