Bi-monthly monetary policy review of RBI

In News 

Recently, The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) voted unanimously to maintain the status quo with regard to the policy repo rate and by a majority of 5 to 1 to retain the accommodative policy stance. 

• It indicated the unwinding of the accommodative policy as the economy shows signs of emerging from the impact of the Covid-19 pandemic.
  • This process has to be gradual, calibrated and non-disruptive while remaining supportive of the economic recovery”. 

The objectives behind the move

• RBI will continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of Covid on the economy. 
  • It will spur strong enough economic growth to reduce unemployment or to prevent unemployment from rising.

• It may help in neutralising the adverse impact of COVID-19 on the economy.

Major Points 

• The Monetary Policy Committee (MPC) kept the repo rate unchanged at 4 percent, the reverse repo rate at 3.35 per cent, and the marginal standing facility (MSF) rate and bank rate at 4.25 per cent in the bi-monthly monetary policy review.
• RBI has discontinued the government securities acquisition programme (G-SAP) as part of liquidity normalisation. 
  • The central bank pumped Rs 2.37 lakh crore through various market operations including G-SAP in the first six months of the current year to revive the economy.
• The RBI has slashed the inflation forecast for 2021-22 to 5.3 per cent from the 5.7 per cent estimated earlier. 
• The RBI has retained the projection for real GDP growth at 9.5 per cent in 2021- 22, consisting of 7.9 percent in Q2 of the current year. 

• CPI inflation for Q1:2022-23 is projected at 5.2%. 

Issues and Challenges 

• Output is still below pre-pandemic level and the recovery remains uneven and dependent upon continued policy support.
• According to the RBI, even as the domestic economy is showing signs of mending, the external environment is turning more uncertain and challenging, with headwinds from slowing growth in some major Asian and advanced economies.
• A steep jump in natural gas prices in the recent weeks, and concerns emanating from the normalisation of monetary policy in some major advanced economies

Conclusion and way forward 

• The ongoing domestic recovery needs to be nurtured assiduously through all policy channels. 
• The MPC will remain watchful given the uncertainties surrounding the outlook for growth and inflation.
• The substantial acceleration in the pace of vaccination, the sustained lowering of new infections and the coming festival season should support a rebound in the pent-up demand for contact intensive services, strengthen the demand for non-contact intensive services, and bolster urban demand.
• RBI would ensure adequate liquidity to support the process of economic recovery.  
• The Reserve Bank will continue to support the market in ensuring an orderly completion of the borrowing programme of the Government.

Source: IE