RBI Monetary Policy - Feb 2021 - Full update

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 RBI Monetary Policy - Feb 2021 - Full update

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• Synopsis: The RBI did not make any major change in stance. It retained the repo rate at their record low of 4 per cent and the reverse repo rate at 3.35 per cent. All six members of the Monetary Policy Committee voted to leave the policy rate unchanged including the RBI Governor Shaktikanta Das. This was the last bi-monthly meeting of the FY 2021.
• Key highlights of MPC Review:

1. MPC voted unanimously to leave repo rate, Reverse repo rate, MSF, Bank rate remain unchanged.

1. Inflation outturns have turned out to be better than expected as CPI Inflation in the Jan-Mar quarter at 5.2% and CPI Inflation in H1 of FY22 seen at 5.0-5.2%. Bumper Kharif crop, rising Rabi sowing are indicative of stable food inflation. Outlook for core inflation is influenced by cost-pushed pressures.
2. Active supply intervention contributed to lowering of inflation in December.
3. Outlook on growth has improved significantly; GDP growth is projected at 10.5% in 2021-22. Need of the hour is to continue to support growth as the objective is to return the economy to a higher growth trajectory
4. Signs of recovery has strengthened further, list of normalising sectors expanding. The policy stance remains accommodative as long as necessary.
5. Electricity demand reflect broader normalisation of economic activity than in December. Saw renewed confidence in the real estate sector. Vaccination drive to provide impetus for restoration of contact intensive sectors. Speed of daily highway construction is rising. Flow of financial resources to commercial sectors is improving. Economic Survey suggests further sequential improvement in loan demand.
6. Budget has provided strong impetus for revival of health, infra sector and will reinvigorate domestic demand. Atmanirbhar stimulus given earlier has started working its way through. Projected increase in capex by govt augurs well for investment demand, improving credibility of quality of spending.
7. Concerted policy action by both centre and state is critical to ensure that ongoing cost build up does not accelerate. Maintenance of financial stability, orderly evolution of yield curve was explicitly regarded as "public good".
8. Stance on liquidity management continues to remain accommodative and in consonance with policy stance will ensure adequate liquidity in the system.  Proactively took steps to insulate domestic markets from global spillovers.
9. CRR normalisation opens space for other market operations to inject liquidity; to announces two-phase normalisation of CRR. Restoration of CRR to happen in two phases from March; decided to gradually restore CRR to 3.5% from March and then 4% from May 22nd.
10. Financial stability at the core of RBI's objective. RBI will ensure orderly completion of govt's market borrowing program for FY22, and will include NBFCs under TLTRO on-tap scheme for incremental lending to stressed sectors. The MSF facility to banks will be available till September.
11. To extend dispensation of enhanced held-to-maturity (HTM) category under SLR to 22%. Banks will be allowed to deduct new credit to MSMEs from their NDTL. To defer implementation of last tranche of capital conservation buffer and implementation of MSFR by another 6 months.
12. To come out with consultation paper to harmonise regulatory framework in microfinance space. To allow retail investors to open gilt accounts with RBI (BBIIIGGG), to provide retail investors access to primary and secondary government securities market.
13. To provide retail investors online access to gilts market via Retail Direct. (a first time move, may be a precursor to CBDC - Digital Currency)
14. Allowing retail investors together with HTM relaxation will facilitate smooth completion of govt's borrowing programme in FY22. Indian economy is poised to move in only one direction, that is upwards.
15. In FY22, will undo damage that COVID inflicted on the economy.

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