The Reserve Bank of India (RBI) recently released its Monetary Policy Report for April 2021. This report includes a range of critical information, including policy rates, Gross Domestic Product (GDP) growth projections, inflation updates, and the central bank’s stance on current economic conditions. A number of essential points are explored in greater depth below.
Unchanged Policy Rates
In their recent report, the RBI decided to maintain the existing policy rates. This means that the repo rate remains at 4%, while the reverse repo rate stays at 3.35%. The marginal standing facility (MSF) and bank rate are both set at 4.25%.
GDP Projection
The report also provided an updated projection for the Real Gross Domestic Product (GDP) growth for the fiscal year 2021-2022. The RBI has chosen to retain the forecast at 10.5%.
Inflation
In the recent monetary policy report, the RBI revised the projection for the Consumer Price Index (CPI) inflation. This revision is broken down by quarter:
– 5.0% in Quarter 4 of 2020-21
– 5.2% in Quarter 1 of 2021-22
– 5.2% in Quarter 2 of 2021-22
– 4.4% in Quarter 3 of 2021-22
– 5.1% in Quarter 4 of 2021-22
Accommodative Stance
The central bank has decided to continue its accommodative stance to ensure continued growth and mitigate the effect of Covid-19 on the economy.
Support to Financial Institutions
The RBI plans to extend a new support of Rs. 50,000 crore to the All India Financial Institutions for new lending in the 2021-22 financial year.
Review Committee for ARC’s
The RBI has decided to form a committee to undertake a comprehensive review of the role and efficacy of Asset Reconstruction Companies (ARCs) in managing bad loans within the financial sector.
Extension of Priority Sector Lending
The RBI has approved a six-month extension, to September 30, 2021, for Priority Sector Lending (PSL) classification. This will enable lending by banks to Non-Banking Financial Companies (NBFCs) for ‘on-lending’ to sectors that contribute significantly to exports and employment.
Government Securities Acquisition Programme (G-SAP) 1.0
For the fiscal year 2021-22, the RBI has decided to implement a secondary market Government Security (G-sec) Acquisition Programme or G-SAP 1.0. Its goal is to avoid volatility in the G-sec market and provide certainty to bond market participants.
Explanation of Key Terms
The report also uses key financial terms, including repo and reverse repo rate, bank rate, MSF, Open Market Operations, government security, inflation, and Consumer Price Index (CPI). The repo rate refers to the rate at which RBI lends money to commercial banks, while the reverse repo rate is the rate that RBI borrows from these banks. Inflation is the measure of the average price change in a basket of commodities and services over time. The CPI is a measure of price changes from the perspective of a retail buyer and is released by the National Statistical Office (NSO).
