RBI Governor Shaktikanta Das: MPC Keeps Policy Rates Unchanged, Stays Accommodative

Global stimulus spillovers impact asset prices and financial markets, which we take into account before making decisions, RBI Deputy Governor Patra said.

• In the MPC's assessment, spillover of global monetary actions is the second biggest source of risk for India, after the rise in Covid infections
• Spillover can impact India both positively and negatively
• If U.S. stimulus spills over, then we may have a problem of high capital flows
• We could have the opposite problem of capital flight as well

At the current juncture, growth is of paramount importance, while keeping in mind inflation targetting, the RBI Governor said.

• 4% inflation target is well entrenched
• Tolerance band allows room to act in extraordinary circumstances
• Growth is of paramount importance at the current juncture
• We will study how it plays out in the future

According to the RBI’s assessment, core inflation has been disrupted due to pandemic related issues rather than supply side problems, Deputy Governor Michael Patra said, adding that, “On the repo rate, all options are available to us on the table.”

The secondary market G-Sec Acquisition Programme is different to the RBI’s usual open market operations and will run in addition to the other liquidity measures taken by the central bank, Governor Das said.

Deputy Governor Michael Patra added that unlike OMOs, where the RBI uses its discretion, the G-SAP will give explicit assurance on the amount of bond purchase from the secondary market. This would also allow market participants to plan their engagement with the borrowing programme.

However, the RBI is not committing to completely give up the option of rejecting bids. “Since RBI is managing conflicting targets, we have to find the right balance,” Das said adding that the central bank will take a call based on whether there is an orderly bid or a complete outlier.

It is a challenging instrument because it can go awry, Patra admitted, but this is a risk the RBI has taken, given its commitment to the management of liquidity.

“The programme will ensure that there is an orderly evolution of yield curve and financial markets as well,” Das said.

RBI will continue to do “whatever it takes” to preserve financial stability, RBI Governor Shaktikanta Das said.

• Will continue to insulate financial markets from global spillovers.
• Urge market participants to take heed of actions, communications in balanced manner.

The Reserve Bank of India has decided to accept the recommendations of an advisory committee that reviewed ways and means advance limits to states and union territories. The aggregate ways and means advance limit of all states and UTs will be enhanced to Rs 47,010 crore, an increase of 46%.