RBI governor Shaktikanta Das stated that the Monetary Policy Committee (MPC) decided to keep the policy rates unchanged. The repo rate was unanimously maintained at 4% and the reverse repo rate was maintained at 3.35%.
This comes across as a pragmatic step that has a potential to balance growth with inflation. As it can be discerned, the repo rate remains unchanged, it indicates that the industry cost of funds will remain low. This gives a direction towards the CRR (Cash Reserve Ratio) rising from 3% to 4%. This will make cheap funds available for the government to finance the Fiscal deficit that is to rise due to government’s pro spending agenda in the FY 20-21.
The MPC has pegged the real Gross Domestic Product growth at 10.5% for the FY 2021-22. This emphatically means that the accommodative policy stance of RBI will continue.
Zarin Daruwala, Indian and South Asian markets Standard Chartered Bank stated, “as expected, the MPC continued with its accommodative stance and clearly indicated its intent to remain supportive of growth as long as required.” He also appreciated RBI’s move to accommodate lending in MSMEs and said “introduction of lending to new MSME customers without statutory requirements as well as extension of targeted long term repo operations window for NBFCs will improve credit delivery to these segments, with the relief on the capital conservation buffer providing balance sheet room to banks”.
RBI also indicated that the retail investors will now be able to directly invest in government securities with RBI. This will lead to more diversification of government borrowing. RBI governor maintained that the retail investors will be given online access to both primary and secondary government securities market. The experts approve RBI’s stance on accommodating more retail investors in g-sector. This will also lead to financialization of a vast pool of domestic savings.
It was also mandated in the meeting that the Inflation outturns have turned out to be better than expected as CPI Inflation in the Jan-Mar quarter stood at 5.2% and CPI Inflation in H1 of FY22 is seen at 5.0-5.2%. Bumper Kharif crop and rising Rabi sowing are indicative of stable food inflation. It has been indicated that Active supply intervention also contributed to lowering of inflation in December.
RBI governor has stated that the economy has shown strong signs of recovery. Signs of recovery has strengthened further as the list of normalizing sectors is expanding. Increased Electricity demand reflects broader normalization of economic activity in present scenario compared to December. A renewed confidence in the real estate sector has been noted. This would be further enhanced by opening government securities market to the retail sector. Moreover, Vaccination drive will provide impetus for restoration of contact intensive sectors.
With rising investment in the infrastructure sector by the government for the FY 20-21, the Speed of daily highway construction is rising with employment. It has also been stated that the Flow of financial resources to commercial sector is improving. Survey further suggested improvement in loan demand throughout the economy.
This mainly comes as the budget has provided a strong support to the health and infra sectors. Government mandates that the Atmanirbhar stimulus has started working its way through.