The MPC voted unanimously to keep rates unchaged.RBI Monetary Policy LIVE: The Reserve Bank of India’s Monetary Policy Committee has kept the policy rate unchanged at 4% and voted unanimously to maintain the status quo with an accommodative stance. RBI Governor Shaktikanta Das, further said that the RBI projects India’s GDP growth rate will be at 10.5% for the upcoming fiscal year. “The outlook on growth has improved significantly, with positive growth impulses becoming more broad-based, and the rollout of the vaccination programme in the country auguring well for the end of the pandemic,” Governor Das said. On the inflation front, the MPC projects retail inflation for the current quarter of this fiscal at 5.2%, withing the tolerance band of the RBI.
The Reserve Bank of India, along with the MPC announcements, also shed light on other measures that the central bank is working on the strengthen the financial system. RBI Governor said that the central bank is working to allow retail investors to invest in government securities after opening Gilt accounts with the RBI. Along with this, RBI has also allowed foreign portfolio investors (FPI) to invest in security receipts and debt instruments issued by Asset Reconstruction Companies. RBI Governor Das assured markets that the central bank will continue to maintain ample liquidity even though he discussed the restoration of Cash Reserve Ratio (CRR).
Highlights
MPC keeping key rates unchanged for the fourth consecutive time was on expected lines. The central bank keeping the policy stance accommodative indicates its intention to act on rates if the need arises. After the FM, RBI Governor has projected above 10% GDP growth for next year. CPI inflation trajectory by RBI indicates supply situation issues normalizing. A gradual two-step CRR normalization is a step in the right direction, what needs to be seen is RBI conducting the borrowing program for the government in a non-friction way. RBI allowing resident individuals to make remittances to IFSCs for NRIs will help boost sentiment and inflows under LRS.: Nish Bhatt, Founder & CEO, Millwood Kane International
As expected, the MPC voted unanimously to leave the policy repo rate unchanged at 4% and assured continuation of accommodative stance well into FY22. This will complement the measures taken by the Govt in the recent budget to revive growth momentum in the economy. Despite the expansionary Budget, support from RBI is needed at this juncture to strike the right balance in ensuring enough liquidity in the system. Thankfully the RBI Governor time and again in his speech assured comfortable liquidity in the banking system going ahead. Overall the policy outcome was largely on expected lines and did not provide any large surprises on either side.: Dhiraj Relli, MD &CEO, HDFC Securities
RBI remains a major buyer of $ in both spot and derivatives market and that is not allowing the Rupee to appreciate inspite of record foreign capital inflows and speculative long positions in the Rupee. A constructive Union Budget, balanced monetary policy and benign global environment may mean that Rupee may remain strong. Over the medium term it may test 72.50 levels: Anindya Banerjee, DVP, Currency Derivatives & Interest Rate Derivatives, Kotak Securities
"RBI stays on hold, and indicates that it remains committed to maintaining ample liquidity and keeping policy accommodative for the foreseeable future, amid lower inflation and stronger growth. However, markets may look for more concrete action on bond yield management from the central bank."
~ Barclays
"The RBI announced that it will roll back the earlier CRR cut (of 1% in March 2020) in two tranches—to 3.5% by March 2021 end and to 4.0% by beginning of May 2021. However, the banking sector availing funds under MSF by dipping into additional 1% of SLR (which was earlier extended to March 2021 end) has further been extended by another 6 months to Sep 2021 end; and this should help to give access to Rs. 1.53 lakh crore of liquidity," said Sampath Reddy, CIO, Bajaj Allianz Life.
A deep dive on NPAs is part of the central bank's supervisory provision, the RBI governor said today.
RBI Governor said that the central bank is waiting for the formal proposal from the government on the ARC, AMC that the Union Budget proposed earlier this week. Governor Das said that there have been discussions with the government on a bad bank earlier.
As GDP grows and the Indian economy grows, the total volume of savings and deposits will expand, RBI Governor said while adding that the Retail Direct plan will not harm the banks.
RBI Governor today said that the digital currency is a work in the progress at the central bank. The government is looking to launch a state owned digital currency.
Retail Direct is a major structural reform, RBI Governor Das said. 'It has been our endeavour to make G-Sec market accessible to retail investors,' He added.
RBI Governor has reiterated that the overall monetary policy stance remains accommodative and that the liquidity for the banking system remains the same.
"The central bank vehemently conveyed its openness to use all monetary tools to keep the liquidity conditions congenial for growth. However, measures are announced to normalize the surplus liquidity conditions, with CRR to be hiked in a gradually phased and non-disruptive manner. The central bank sounded more optimistic on growth and inflation projections for next fiscal year. Nevertheless, bond markets are not impressed with the same, with yields jumping on concerns of hefty government borrowing. In terms of other measures, RBI emphasized on credit growth, with opening TLTROs to NBFCS for incremental lending, while MSF relaxation has been extended for 6 months," said Amar Ambani, Senior President and Head of Research - Institutional Equities, YES SECURITIES.
"The RBI announcement has come on the expected lines, continuing to remain accommodative. However, there is a marginal increase in inflation which at this time of the year would be a cause of concern. What is important to note is while FPI and DI inflows are increased, the manufacturing investments continue to lag and whilst the outlook on growth suggests positive, one may have to carefully watch how credit off-take picks up in the next two quarters. Also, private investments will be critical to drive future economic growth. The two indicators to watch out for in the coming quarters would be household consumption alongside credit off-take from banks. This will determine if there is real demand pick up or if we are still riding the pent up demand," said Sanjay Kumar, CEO & MD, Elior India.
RBI Governor Shaktikanta Das will address a press conference any minute now. The RBI Governor is expected to address questions related to the bi-monthly MPC decisions taken today and the RBI's other key decisions.
The RBI today said that to manage risks in outsourcing, it shall issue guidelines to operators and participants of authorised payment systems. The central bank is looking to ensure that a code of conduct is adhered to while outsourcing payment and settlement-related services.
Systemic liquidity remained in large surplus in December 2020 and January 2021, engendering easy financial conditions. Reserve money rose by 14.5 per cent yo-y (on January 29, 2021), led by currency demand. Money supply (M3), on the other hand, grew by only 12.5 per cent as on January 15, 2021, but with non-food credit growth of scheduled commercial banks accelerating to 6.4 per cent. Corporate bond issuances at ₹5.8 lakh crore during April-December 2020 were higher than ₹4.6 lakh crore in the same period of last year. India’s foreign exchange reserves were at US$ 590.2 billion on January 29, 2021 – an increase of US$ 112.4 billion over end-March 2020.
~ RBI MPC
The RBI has proposed to provide retail investors with online access to the government securities market – both primary and secondary – directly through the Reserve Bank. The facility of buying government securities directly though RBI is to be called Retail Direct. This will be possible by opening Gilt accounts directly with RBI.
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"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," said Shishir Baijal, Chairman & Managing Director, Knight Frank India.
“In line with expectations, the RBI has kept the repo rate unchanged at 4%, while continuing the basic accommodative stance of the policy in response to the objective of revival of growth. It’s a wise step taken to ensure 2021 to be a better year and to be a setting tone for the new economic era. The home loan rates will continue to be at a multi-year row, hence aiding homebuyers. The MSF and bank rates are unchanged at 4.25% and this will help in restructuring many companies which are still in distress due to the lockdown and boosting the sector at large," said Ram Raheja, Director at S Raheja Realty.
"As part of continuing efforts to increase retail participation in government securities and to improve ease of access, it has been decided to move beyond aggregator model and provide retail investors online access to the government securities market – both primary and secondary - along with the facility to open their gilt securities account (‘Retail Direct’) with the RBI. Details of the facility will be issued separately," RBI said.
RBI Governor today announced that the central bank will soon allow retail investors to invest in Government securities. The move could help the government tap into a new section entirely for funds.
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".
Nifty breached 15,000 for the first time ever as Shaktikanta Das announced that MPC has decided to keep rates unchanged, yet again. The MPC has maintained its accommodative stance.
MPC noted that consumer confidence in the economy is reviving and business expectations of manufacturing, services, and infra remain strong.
Shaktikanta Das today said that the Reserve Bank of India's survey points towards improvement in capacity utilisation in manufacturing sector to 63.3% in Q2 of the current fiscal from 47.3% in fiscal first quarter.
"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," said Joseph Thomas, Head of Research - Emkay Wealth Management.
“On 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," Deepthi Mathew, Economist at Geojit Financial Services.
The Reserve Bank of India's MPC has said that the growth impulses are now becoming more broad-based with the roll-out of the vaccine in the country auguring well for the end of the pandemic.
With the crude oil prices returning to normal with the developments across the world about vaccines, RBI Governor today said that this has intensified the search for returns, resulting in surges of capital flows into emerging markets like India which as led to an increase in volatility.
During his MPC announcement, RBI Governor today said that reserve money grew by 14.5% on-year basis on January 29, led by current demand. M3, however, grew only 12.5% on January 15.
Shaktikanta Das today said that the money market and G-Sec yields firmed up in January on perceived market misconceptions about RBI reversing its accommodative market stance.
In 2021-22 India would undo the damage that covid-19 has done to the economy, RBI Governor Shaktikanta Das said.
RBI currently operates 22 ombudsman offices across the country. To make the mechanism simpler and more responsive, the RBI will introduce centralised processing of grievances. The scheme will be rolled out in June this year.
RBI said that with the growing participation in digital payments ecosystem a 24X7 helping will be set up to grow confidence in the system of digital payments.
FPI invested in defaulted corporate bonds will be exempted from the short-term limit and medium-term residual maturity requirement under the medium-term framework.
RBI today announced that retail investors will now be provided with online access to government securities market, both primary and secondary. "This will broader investor base and provide retail investors with enhanced access to participate in Government securities market," Shaktikanta Das.
To develop IFSCs, RBI today proposed to permit residents to make remittances to IFSC for investment in securities issued by non-resident securities in IFSC.
RBI will come out with a consultative document harmonizing regulatory frameworks applicable to various lenders in the micro finance space.
Scheduled Commerical Banks will be allowed to deduct the credit disbursed to new MSME borrowed from their NDTL for calculation of CRR. New MSME borrowers will be those who have not accessed funds from banks till January 2021.
RBI decided to extend the dispensation of enhanced HTM of 22% up to March 31, 2023. To include securities acquired between April 1, 2021 and March 31, 2022. "The HTM limits will be restored in phased manner starting June 31, 2023," RBI Governor said.