Highlights of MPC policy; RBI Das, Patra’s comments at press meet

Informist, Wednesday, Apr 7, 2021

MUMBAI – Following are the highlights of the First Bi-monthly Monetary Policy Committee Meeting of the Reserve Bank of India for 2021-22 (Apr-Mar):

* MPC voted to leave repo rate unchanged at 4.00%
* Reverse repo rate left unchanged
* MPC voted to continue with accommodative stance
* Stance to be accommodative till recovery prospects well secured
* Recent surge in COVID cases must be closely watched
* COVID surge imparted greater uncertainty to outlook

* To release MPC Apr 5-7 meeting minutes on Apr 22

* CPI inflation path may be subject to upside, downside risks
* See CPI inflation at 5.0% in Jan-Mar
* See CPI inflation at 4.4% in Oct-Dec
* See CPI inflation at 5.2% in Apr-Jun
* See CPI inflation at 5.2% in Jul-Sep
* Food inflation trajectory to hinge on monsoon progress
* 4% CPI over medium term now successfully entrenched
* See CPI inflation at 5.1% in Jan-Mar 2022

* See FY22 GDP growth at 10.5%
* Government efforts, vaccination upside risks to GDP projections
* Policy should be accommodative to nurture, support growth
* Manufacturing firms optimistic of pick-up in demand in FY22
* Aim to strengthen bedrock of macro-economic stability
* Economic activity normalising despite surge in infections
* Record farm production to provide fillip to rural economy
* Rural demand remains buoyant, urban demand gained traction

* To raise WMA limit for states to 470.10 bln rupees
* Enhanced 515.60-bln-rupee WMA limit for states to hold till Sep 30
* Spending on public infrastructure to be a force multiplier

* To market: Can overcome challenges together, ensure recovery
* Liquidity ops to ensure orderly market conditions
* To hold variable rate reverse repos of longer maturities
* More reverse repos not to be seen as liquidity tightening
* To have secondary market gilt purchase programme in FY22
* To support market with adequate liquidity
* To buy 1-trln-rupee gilts via OMO Apr-Jun under new plan
* To commit upfront on certain amount of OMOs for FY22
* To ensure orderly evolution of yield curve
* Two-way bond yield movements shouldn't be abrupt, disruptive
* Urge market to heed our signals, actions in balanced manner
* Extend TLTRO on-tap scheme by six months up to Sep 30
* To buy 250 bln rupees of gilts via secondary market on Apr 15
* To buy gilts via secondary market G-Sec acquisition programme

* To do whatever it takes to preserve financial stability
* To set up panel to review working of asset recast companies
* To provide 500 bln rupees as liquidity to NHB, NABARD, SIDBI
* To publish financial inclusion index in July every year
* Priority sector tag for NBFC loans extended till Sep 30
* To make interoperability mandatory for prepaid instruments
* Conditional OK to companies parking ECB proceeds with banks till Mar 1
* Hike limit on payments banks day-end balance to 200,000 rupees
* Prepaid instruments' outstanding balance cap now 200,000 rupees
* FX reserves at $577 bln as on Mar 31, up $99.2 bln on year 
* India's FX reserves as on Mar 31 covers 18.4 month import bill


[I] Highlights of RBI Das, Patra's comments at post-policy press meet

MUMBAI – Following are the highlights of Reserve Bank of India Governor Shaktikanta Das and Deputy Governor Michael Patra's comments at a post-policy press conference today:

* Our signals, actions, communication must be read together
* Gilt buy plan different from usual OMO calendar
* Gilt buy plan in addition to LAF, special OMO operations
* New gilt purchase plan is outside usual toolkit
* On FY22 government borrowing: See foreign investments come in
* Growth of paramount importance now while keeping CPI in mind
* MPC statement is clear on accommodation, gives guidance
* MPC has looked through some aspects of inflation
* Mindful of overall liquidity position in market
* Too early in new financial year to give time-based guidance
* Current COVID surge may not impact growth as much this time
* Don't think COVID second wave has undermined growth
* Guidance very appropriate
* Businesses better prepared to deal with new wave of COVID
* Don't see need for loan moratorium at this point of time
* All options on the table on forex
* Will try to continue with gilt buy plan beyond Apr-Jun
* New gilt buy plan is not a one-off
* On gilt buy plan size post Apr-Jun: Must have element of surprise
* Will try to continue gilt buy plan; this is just 'GSAP 1.0'
* Primary forex objective is to prevent exchange rate volatility

* Gilt buy plan helps market plan engagement with government borrowing
* Assuring market of RBI's support for government borrow with new plan
* Committed balancesheet to monetary policy with gilt buy plan
* Gilt buy plan to run alongside our other instruments
* New gilt buy plan part of RBI liquidity planning for year
* New plan assures gilt buy irrespective of market conditions
* New bond buy plan is explicit commitment on liquidity
* Gilt buy plan replenishes liquidity lost on CRR move
* Global policy spillovers a big issue for Indian economy
* Extremely conscious of core inflation pressures


Compiled by Vishal Sangani 
Filed by Avishek Dutta

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