RBI’s Monetary Policy: A Shock or A Rock?
After booster budget 2021–22, let us see how effective RBI’s monetary policy is and what the key points to highlight are. The major takeaways of the monetary policy in the said order are as follows:
-The first and the major announcement by RBI Governor Shaktikanta Das, was keeping the repo rate unchanged at 4%. This is for the fourth time in a row when RBI has kept its key lending rate unchanged in its February policy.
-The reverse repo rate will also continue to stand at 3.35% for banks.
-Moreover, MPC jointly decided to keep going with the “Accommodative Stance” to focus the growth and revive the economy. The “Accommodative Stance” is a freeing credit or monetary policy when Government prioritizes growth of the economy by injecting money supply. The imminent reason to continue to with the accommodative stance said by the Governor is to revive growth on a durable basis and mitigate the impact of COVID-19.
-Governor Shaktikanta Das emphasized on improved economic indicators in comparison to the last meeting that happened in December.
-Consumer Price Index (CPI) inflation is projected to be revised to 5.2% in 3 months starting from January to March 2021.
-Inflation eased below the tolerance level of 6% which s believed to be RBI’s comfort zone.
-The Governor focused on improved outlook for growth given the growth impulses and further led by the COVID-19 vaccines that are rolled out to contain the Pandemic.
-The sectors coming back to normal are gradually increasing. This definitely includes the back to normal movement of goods, people and as well as the resumed trading activities.
-Cash Reserve Ratio (CRR) that is set to normalize is followed by reversing the CRR cut announced in March 2020. The normalization of CRR will lead to making a room for a variety of other market operations.
-An expert panel to be formed by the RBI to brace the working of primary urban co-operative banks.
-As the budget majorly focused on infrastructure, business expectations of manufacturing, services and infrastructure happen to be idealistic.
-With a strong belief that the economy will revive quickly after a year of being lethargic, there is strong stance the COVID-19 damage will be undone in FY 22 itself. The following year 2021 after the Pandemic-hit year is luring many expectations and as the Governor said, “The year 2021 is setting up a new era in the course of our economic history” will be the one to watch out for.
-FDI and FPI investments have gradually risen in the recent past months that reflects the restoration of faith in the Indian economy.
-The pace of daily national highways construction is rising along with doubled speed of national highway projects, just when infrastructure has enticed major attention.
-The digital payment ecosystem should be constantly upgraded but the high potential functioning fear is linked with outsourcing of payment system operators and participants of authorized payments systems.
-On the most positive side, there is a 10.5% GDP growth outlook for 2021–22.
-Additionally, the capacity utilization in the manufacturing sector improved to 63.3% in Quarter 2 which in the first quarter was only less than 50% at 47.3%.
-RBI will now allow retail investors to directly access G-sec market and with this India is now one amongst the selected countries that allow such a direct access. This will encourage the retail participation in government securities by moving beyond the aggregator model along with furthering the facility to open their gilt securities account.
-The RBI will now set an Integrated Ombudsmen Scheme for customer grievance redressal by June 2021.
-A surplus of systematic liquidity was recorded in December 2020 and January 2021 that will provoke tranquil financial conditions.
-Reserve money spiked by 14.5% YoY basis, money supply rose by 12.5% on January 15, 2021. However, the non-food credit growth of scheduled commercial banks spurred to 6.4%.