Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!
SHARE:
RBI monetary policy review April 2021
Read more on - Polity | Economy | Schemes | S&T | Environment
- The crux of it: Reserve Bank of India (RBI) has kept the policy rate unchanged at 4 per cent and voted unanimously to maintain the status quo with an accommodative stance. The reverse repo rate remained unchanged at 3.5 per cent, and the marginal standing facility and bank rate kept unchanged at 4.25 per cent. The RBI has kept the key interest rate (repo) unchanged for a long time now, and a poetic Governor Das said that “If patience is worth anything, it must endure to the end of time. And a living faith will last in the midst of the blackest storm.”
- Summarised points:
- The repo rate has been kept unchanged at 4%, and reverse repo rate kept at 3.35%.
- The real GDP growth for the Fiscal Year 2022 is predicted to be 10.5%, while CPI inflation for 2022 is predicted to be at 5.1%.
- The MSF rate has been kept unchanged at 4.25%, and Bank rate has been kept unchanged at 4.25%.
- RBI is to buy Rs 1 lakh crores of G-Sec under the G-Sec Acquisition Programme.
- Centre’s Ways and Means Advances extended by 46%. The current limit is Rs 32,225 crores, now increased to Rs 47,010 crores.
- Maximum End of Pay balance for payment banks has been doubled to Rs 2 lakhs.
- Additional liquidity facility of Rs 50,000 crores announced for NABARD, SIDBI and NHB in 2021-22.
- Liquidity facility: Special refinance facilities of ?75,000 crore were provided to All India Financial Institutions (AIFIs) like NABARD, SIDBI, NHB and EXIM bank during April-August 2020. To nurture the still nascent growth impulses, it is felt necessary to support continued flow of credit to the real economy. Accordingly, liquidity support of ?50,000 crore for fresh lending during 2021-22 will be provided to AIFIs: ?25,000 crore to NABARD; ?10,000 crore to NHB; and Rs. 15,000 crore to SIDBI.
- WMA announcement: The RBI announced an extension of interim ways and means advances (WMAs) limit of Rs 51,560 crore to state governments till September 2021, to help them tide over the financial stress posed by the second wave of COVID-19. WMAs are temporary advances given by the RBI to the states to tide over any mismatch in receipts and payments. There are two types of WMA normal and special. While normal WMA are clean advances, special WMA are secured advances provided against the pledge of the government of India dated securities. In addition, RBI has enhanced the aggregate WMA limit of states and Union Territories (UTs) to Rs 47,010 crore per year. Acting as the debt manager of the state governments, the RBI’s WMA are intended to provide a cushion to the states to carry on their essential activities and normal financial operations. These increased limits are expected to help state governments spend on fighting the fallout of COVID-19.
- TLTRO on Tap Scheme – Extension of Deadline: With a view to increasing the focus of liquidity measures on revival of activity in specific sectors, the TLTRO on Tap Scheme announced on October 9, 2020 which was made available up to March 31, 2021, is now being further extended by a period of six months i.e., upto September 30, 2021.
- Inflation: Going forward, the food inflation trajectory will critically depend on the temporal and spatial progress of the south-west monsoon in its 2021 season. Second, some respite from the incidence of domestic taxes on petroleum products through coordinated action by the Centre and States could provide relief on top of the recent easing of international crude prices. Third, a combination of high international commodity prices and logistics costs may push up input price pressures across manufacturing and services. Taking into consideration all these factors, the projection for CPI inflation has been revised to 5.0 per cent in Q4:2020-21; 5.2 per cent in Q1:2021-22; 5.2 per cent in Q2; 4.4 per cent in Q3; and 5.1 per cent in Q4, with risks broadly balanced.
- UPI interoperability: The RBI would now allow RTGS and NEFT connectivity with non-bank payment system operators, paving way for UPI interoperability. Along with this, the RBI also increased the maximum balance per customer for payments banks to Rs 2 lakh per individual from Rs 1 lakh earlier. This facility is expected to minimise settlement risk in the financial system and enhance the reach of digital financial services to all user segments. Centralised payment systems such as RTGS and NEFT, operated by the RBI, was so far restricted to only banks with a few exceptions. RBI today announced that it is proposing to enable non-bank payment systems like PPIs, card networks, White label ATM operators, among others to take direct membership in the central bank run RTGS and NEFT.
- Growth forecast: The RBI has retained the economic growth projection for the current financial year at 10.5 per cent, while cautioning that the recent surge in COVID-19 infections has created uncertainty over the economic growth recovery. In its last policy review, the RBI had projected a GDP growth rate of 10.5 pc for FY’22. Taking various factors into consideration, it said, “the projection of real GDP growth for 2021-22 is retained at 10.5 per cent consisting of 26.2 per cent in Q1, 8.3 per cent in Q2, 5.4 per cent in Q3 and 6.2 per cent in Q4.” Governor Das said the recent surge in COVID-19 infections adds uncertainty to the domestic growth outlook amidst tightening of restrictions by some state governments. Though the firms engaged in manufacturing, services and infrastructure sectors were optimistic about a pick-up in demand, “consumer confidence, on the other hand, has dipped with the recent surge in COVID infections in some states imparting uncertainty to the outlook.”
- Priority sector: With a view to encouraging farm credit to individual farmers against pledge/hypothecation of agricultural produce, it has been decided to enhance the loan limit under priority sector lending (PSL) from ?50 lakh to ?75 lakh per borrower against the pledge/hypothecation of agricultural produce backed by Negotiable Warehouse Receipts (NWRs)/electronic-NWRs (e-NWRs) issued by warehouses registered with the Warehousing Development and Regulatory Authority (WDRA). For other Warehouse Receipts, the loan limit for classification under PSL will continue to be ?50 lakh per borrower.
- Summary: RBI’s first monetary policy of FY22 was on expected lines with rates unchanged and accommodative stance retained. It is on expected lines and is overall a good policy to support and nurture the economy amid a recent surge in second wave of infections. While liquidity has been ensured via TLTRO in case the demand picks up, the opportunity of on-lending through NBFCs, enhancement of loan limit against warehouse receipts, liquidity facility for All Indian Financial Institutions are all good moves to ensure continued availability of credit which aid faster economic recovery.
* Content sourced from free internet sources (publications, PIB site, international sites, etc.). Take your
own subscriptions. Copyrights acknowledged.
COMMENTS