RBI Monetary Policy: Repo rate, liquidity, GDP growth and more—10 key takeaways from October policy announcements by Governor Shaktikanta Das

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged at 4 per cent. “Based on an assessment of the evolving macroeconomic and financial conditions and the outlook, the MPC voted unanimously to maintain status quo with regard to the policy repo rate and by a majority of 5 to 1 to retain the accommodative policy stance,” RBI Governor Shaktikanta Das announced Friday. 

The next meeting of the MPC is scheduled for December 6-8, 2021. All members of the MPC — Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Mridul K Saggar, Michael Debabrata Patra, along with RBI Governor Das unanimously voted for keeping the policy repo rate unchanged. This was the fourth bi-monthly MPC meeting of FY22, and it was the eighth time in a row when RBI kept the repo rate unchanged. 

See Zee Business Live TV Streaming Below:

Here’re the key takeaways from the policy outcome announced by RBI Governor Shaktikanta Das

Repo, reverse repo rates: The RBI MPC decided to keep the repo rate unchanged at 4 per cent to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy. The reverse repo rate remained changed at 3.35 per cent and the marginal standing facility (MSF) rate and the bank rate at 4.25 per cent.

Growth projection: High-frequency indicators suggest that economic recovery gained momentum supported by multiple triggers. Taking all these factors into consideration, the projection for real GDP growth is retained at 9.5 per cent in FY22 consisting of 7.9 per cent in Q2; 6.8 per cent in Q3; and 6.1 per cent in Q4 of FY22. Real GDP growth for Q1 FY23 projected at 17.2 per cent.

Inflation: Overall, the CPI headline momentum is moderating and could bring about a substantial softening in inflation in the near-term, says RBI. Taking into consideration all these factors, CPI inflation is projected at 5.3 per cent for FY22: 5.1 per cent in Q2, 4.5 per cent in Q3; 5.8 per cent in Q4 of 2021-22, with risks broadly balanced. CPI inflation for Q1 FY23 is projected at 5.2 per cent.

Liquidity: The level of surplus liquidity in the banking system increased further during September 2021, The surplus liquidity rose even further to a daily average of Rs 9.5 lakh crore in October so far (up to October 6). The potential liquidity overhang amounts to more than Rs 13 lakh crore.

VRRR auctions: RBI said, “Market appetite for VRRRs has been enthusiastic. Moreover, the higher remuneration which VRRR offers vis-àvis the fixed rate reverse repo is also rendering the former relatively attractive.” 

Keeping in view the market feedback, it is proposed to undertake the 14-day VRRR auctions on a fortnightly basis in the following manner: Rs 4.0 lakh crore today as already notified; Rs 4.5 lakh crore on October 22; Rs 5.0 lakh crore on November 3; Rs 5.5 lakh crore on November 18; and Rs 6.0 lakh crore on December 3, it added.

G-Sec Acquisition Programme (G-SAP): The total liquidity injected into the system during the first six months of the current financial year through open market operations (OMOs), including G-SAP, was Rs 2.37 lakh crore, as against an injection of Rs 3.1 lakh crore over the full financial year 2020-21. It would remain in readiness to undertake G-SAP as and when warranted by liquidity conditions.

(SLTRO) for Small Finance Banks: A special three-year long-term repo operation (SLTRO) of Rs 10,000 crore at the repo rate was introduced for Small Finance Banks (SFBs) in May 2021. This facility is currently available till October 31, 2021. Recognising the need for continued support to small business units, micro and small industries, and other unorganised sector entities, it has been decided to extend this facility till December 31, 2021 and make it available On Tap.

Enhancing Transaction Limit in IMPS to Rs 5 lakh: In view of the importance of the IMPS system and for enhanced consumer convenience, it is proposed to increase the pertransaction limit from Rs 2 lakh to Rs 5 lakh.

Retail Digital Payment Solutions in Offline Mode: To further expand the reach of digital payments and open up new opportunities for individuals and businesses. RBI has proposed to introduce a framework for retail digital payments in offline mode across the country given the encouraging experience gained from the pilot tests.

Geo-Tagging of Payment System Touch Points: To target areas with deficient PA (payments acceptance (PA) infrastructure, it is proposed to introduce a framework for leveraging geo-tagging technology for capturing exact location information on all existing and new PA infrastructure. This would complement the Payment Infrastructure Development Fund (PIDF) framework of the RBI in ensuring wider geographical deployment of PA infrastructure.