On Friday, the Reserve Bank of India (RBI) Guv Shaktikanta Das said that the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 4%.
The 27th meeting of the rate-setting MPC with three external members -- Ashima Goyal, Jayanth R Varma and Shashanka Bhide -- began on February 3.
This is the first meeting of the panel after the Budget 2021-22 earlier this week projected a nominal GDP growth rate of 14.5 per cent and fiscal deficit of 6.8 per cent for the financial year beginning April 1, 2021.
Let's take a closer look at what Das said during his address.
RBI on Friday decided to leave benchmark interest rate unchanged at 4 per cent but maintained an accommodative stance, implying rate cuts in the future if need arises to support the economy hit by the COVID-19 pandemic.
Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with RBI.
The central bank had slashed the repo rate by 115 basis points since late March 2020 to support growth.
In line with the Union Budget, the RBI projected a GDP growth rate of 10.5 per cent for the financial year beginning April 1, on the back of recovery in economic activities.
With regard to inflation, Das said vegetable prices are expected to remain soft in the near term as the central bank projected retail inflation rate to come down to 5.2 per cent in the current quarter and progressively decline to 4.3 per cent by the third quarter of the next fiscal.
He said the growth outlook has improved significantly and the vaccination drive will help the economic rebound.
RBI) has decided to give retail investors direct access to the government securities market. According to Das, India will join a select group of countries offering such facility to investors.
The new arrangement, Retail Direct, will allow direct access to retail investors via the RBI.
This will allow such investors to open Gilt account with the apex bank.
The Reserve Bank has lowered the retail inflation projection for the current quarter of this fiscal at 5.2 per cent, saying it has returned within the "tolerance band".
On the economy, the central bank said it is only going to look upwards from here.
In its last monetary policy review of this fiscal, the RBI has decided to keep the key repo rate unchanged at 4 per cent with accommodative stance to ensure that inflation remains within the target, Das said.
Das also said the retail inflation has "returned within the tolerance band" of 4 per cent.
RBI proposed to provide funds to non-banking finance companies (NBFCs) from banks under on tap TLTRO scheme for lending to some stressed sectors.
In October last year, the RBI had announced on tap targeted long term repo operations (TLTRO) scheme for banks. It had said to conduct on tap TLTRO with tenors of up to three years for a total amount of up to Rs one lakh crore at a floating rate linked to the policy repo rate.
The scheme is available till March 31, 2021.
On a review of monetary and liquidity conditions, he said it has been decided to gradually restore the Cash Reserve Ratio (CRR) in two phases in a non-disruptive manner to 3.5 per cent effective from March 27, 2021 and 4.0 per cent effective from May 22, 2021.
The CRR normalisation opens up space for variety of market operations of the RBI to inject additional liquidity.
The RBI has also decided to defer the implementation of last tranche of the Capital Conservation Buffer (CCB) of 0.625 per cent and also defer the implementation of Net Stable Funding Ratio (NSFR) by another six months from April 1 to October 1, 2021.
The next meeting of the MPC is scheduled during April 5 to 7, 2021.
