Reserve Bank of India Governor Shaktikanta Das on June 4 announced decisions made by the central bank's Monetary Policy Committee (MPC) at its bi-monthly meeting. The MPC kept the repo and reverse repo rates unchanged while retaining the accommodative stance. Governor Das also announced additional measures that RBI will undertake to help businesses ailing from COVID-19 impact.
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Here are the key highlights of the Reserve Bank of India Governor Shaktikanta Das' speech:
MPC keeps repo rate unchanged at 4%: The Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC), which sets interest rates in the country, on June 4 kept key policy rates unchanged citing persisting uncertainties on the economic front due to the COVID-19 pandemic. The repo rate has been retained at 4 percent and the reverse repo rate at 3.35 percent, RBI Governor Shaktikanta Das announced. The marginal standing facility (MSF) rate and the bank rate remained unchanged at 4.25 percent.
Real GDP growth projected at 9.5% in 2021-2022: RBI Governor Shaktikanta Das announced that RBI expects real GDP growth at 9.5 percent in 2021-2022 consisting of 18.5 percent in first quarter, 7.9 percent in the second quarter, 7.2 percent in the third quarter and 6.6 percent in the forth quarter of 2021. The RBI had earlier forecasted 10.5 percent GDP growth for 2021-2022. For Q1, RBI had expected 26.2 percent, much higher than the now revised figure. RBI had also lower forecast for Q2 at 7.9 vs 8.3 percent forecasted earlier. The central bank had pegged Q3 growth at 5.4 percent and Q4 at 6.2 percent, both lower than the now revised growth figure.
CPI inflation projection rate at 5.1% for FY22: Governor Das announced a projection for Consumer Price Index (CPI) inflation at 5.1 percent for FY 2021-22. Das pegged the quarter wise inflation projections for FY22 at 5.2 percent in Q1, 5.4 percent in Q2, 4.7 percent in Q3 and 5.3 percent in Q4, with risks broadly balanced. Normal monsoon and business resilience can provide a tailwind to economic recovery. With a normal monsoon, the comfortable buffer should keep food prices comfortable, he said. However, RBI noted that rising crude prices and higher logistic costs can push up prices and core prices may remain elevated. "Global demand condition is expected to improve with fiscal stimulus and higher vaccination," Das noted.
Forex Reserves: Das said that the RBI is actively engaged in forex market as strength of financial system is crucial for fighting against pandemic. "The exchange rate is stable despite global spillovers and the forex reserves have risen to $598 billion. We are within striking distance of reaching $600 billion on Forex Reserves," he said.
On tap liquidity window of Rs 15,000 crore for contact-intensive sectors like hotels and salons: Governor Das announced an on tap liquidity window for contact intensive sectors. "In order to mitigate the adverse impact of the second COVID wave on contact intensive sectors, a separate liquidity window of Rs 15,000 crore is being opened till March 31, 2022, with tenors of up to 3 years at the repo rate," Das said.
Under the scheme, banks can provide fresh lending support to hotels restaurants tourism, travel operators, adventure and heritage facilities, aviation ancillary services (ground handling and supply chains) and other services that include private bus operators, car repair services, rent a car services providers, event/conference organisers, spa clinics and beauty parlours and saloons.
G-SAP 2.0 of Rs 1.2 lakh crore in Q2FY22: Governor Das announced that another round of Government Securities Acquisition Program (G-SAP) worth Rs 40,000 crore will be conducted on June 17. Additionally, G-SAP 2.0 of Rs 1.2 lakh crore will be conducted in Q2 FY22. “Auctions under G-SAP 1.0 have evoked keen interest from market participants. GSAP 1.0 evoked keen interest with bid-cover ratios of 4.1 and 3.5 in two auctions. We expect the market to respond positively to G-SAP 2.0,” Das said.
Special liquidity facility of Rs 16,000 crore to SIDBI: The RBI is also extending special liquidity facility of Rs 16,000 crore to SIDBI to further support MSMEs. Under the Resolution Framework 2.0, the RBI will expand coverage of borrowers in scheme of borrowers up to Rs 50 crore, from the earlier Rs 25 crore. We have also decided to permit authorised dealer banks to place margins on behalf of foreign portfolio investors (FPIs), and regional rural banks (RRBs) are allowed to issue certificate of deposits (CDs) with option to buyback the CDs. All issuers of CDs will be permitted to buyback their CDs before maturity, on certain conditions.