This report discusses the recent Monetary Policy Report released by the Reserve Bank of India (RBI) in December 2021. The central bank has maintained an accommodative stance, keeping the policy rate unchanged for the ninth consecutive time. This move has significant implications for the country’s economy, with potential impacts on spending, borrowing, and growth.
Unchanged Policy Rates
For the ninth time, RBI has kept the policy rates unchanged. The Repo Rate stands at 4%, Reverse Repo Rate at 3.35%, Marginal Standing Facility at 4.25%, and Bank Rate is also stable at 4.25%.
GDP Projection
The projection for real Gross Domestic Product (GDP) growth for the fiscal year 2021-22 remains constant at 9.5% as announced by the RBI.
Inflation and CPI
The consumer Price Index (CPI) inflation is projected to remain steady at 5.3%. CPI measures price changes from the viewpoint of a retail buyer, including commodities and services such as food, medical care, education, and electronics.
Variable Reverse Rate Repo (VRRR)
The RBI has stated that it will absorb money through VRRR up to Rs 7.5 lakh crore by the end of December 2021. The VRRR program was initiated in August 2021 to absorb surplus liquidity in the system due to its higher yield prospects.
Accommodative Stance
RBI has opted to continue with the accommodative stance until it observes sustainable recovery in the economy. This stance supports more consumer and business expenditure by reducing short-term interest rates and making borrowing less costly, thus increasing the money supply in the economy.
No Permission Required for Infusing Capital
RBI has given permission to banks to infuse capital in their overseas branches and repatriate profits without prior approval, subject to certain regulatory capital requirements. However, the bank should meet the regulatory capital requirements.
Monetary Policy Report
The Monetary Policy Report is published by the Monetary Policy Committee (MPC) of RBI. It determines the policy interest rate required to achieve the inflation target of 4%, with a leeway of 2% points on either side. The Governor of RBI chairs the MPC.
Key Terms Explained
Repo rate is the rate at which RBI lends money to commercial banks in case of any shortfall of funds. Reverse repo rate is the rate at which RBI borrows money from commercial banks. Bank Rate is the rate charged by the RBI for lending funds to commercial banks. Marginal Standing Facility (MSF) is a window for scheduled banks to borrow overnight from the RBI in an emergency situation. Government Security (G-Sec) is a tradable instrument issued by the government that acknowledges its debt obligation. Open Market Operations are market operations conducted by RBI for adjusting the rupee liquidity conditions.