Key Takeaways From The RBI’s Monetary Policy

Ruchira Sonawat
October 8, 2021

On October 8, the monetary policy committee (MPC) kept the primary lending rate, i.e., the repo rate unchanged at 4 percent, and maintained the monetary stance as “accommodative”.

RBI Governor Shaktikanta Das stated that the central bank will keep inflation within the target range. He stated that the MPC’s policy rate decision was unanimous, but the stance decision was 5:1.

RBI Maintains Status Quo For The Eighth Time

The RBI held the repo rate at 4 percent and will continue its accommodating stance.
The reverse repo rate remains steady at 3.35 percent. The RBI last changed its policy repo rate on May 22, 2020, during an off-policy cycle to boost demand by reducing interest rates to a historic low.
The RBI governor said that the MPC will continue with its accommodative stance to support growth and keep inflation within the target.

GDP Forecast Retained At 9.5 Percent

The real GDP growth has been projected at 9.5 percent for FY 2021-22.
GDP forecast consists of 7.9 percent in Q2, 6.8 percent in Q3 and 6.1 percent in Q4 of 2021-22.
Real GDP growth for Q1 of FY 2022-23 has been projected at 17.2 percent.
The GDP projection consists of 7.9 percent for the second quarter, 6.8 percent for the third quarter and 6.1 percent for the fourth quarter of 2021-22.

Retail Inflation For FY22 Projected At 5.3 Percent

Consumer Price Index (CPI) inflation for Q1 of FY 2022-23 is projected at 5.2 percent.
The RBI governor said that growth impulses were strengthening and that the inflation trajectory was more favourable than anticipated.
Food inflation is also expected to remain muted in the coming months on the back of record production of foodgrains.

IMPS Transaction Limit Enhanced

The RBI has proposed to increase the per transaction limit of IMPS from ₹2 lakhs to ₹5 lakhs.
With RTGS now operational round the clock, there has been a corresponding increase in settlement cycles of IMPS, lowering credit and settlement risks.
According to the RBI, this would contribute to a rise in digital payments and offer consumers an extra facility for making digital payments exceeding ₹2 lakhs.

Introduction Of Digital Payment Solutions In Offline Mode

The RBI has recommended establishing a framework for conducting retail digital payments in the offline mode across the country.
It has completed preliminary tests of the new technology that enables retail digital payments even when internet access is limited or non-existent.

Internal Ombudsman Scheme For Large NBFC Customers

To enhance NBFCs’ internal grievance resolution mechanisms, the RBI has decided to implement the Internal Ombudsman Scheme (IOS) for specific types of NBFCs with increased customer contact.
It will be similar to the IOS in terms of functionality for banks and non-bank payment system players.
Selected NBFCs would be required to designate an Internal Ombudsman (IO) at the helm of their internal grievance resolution process to investigate client concerns.

SLTRO Facility For Small Finance Banks Extended

The central bank stated that the Special Long-Term Repo Operations (SLTRO) for small financing banks (SFBs) will be extended until December 31, 2021.
In May 2021, SFBs were given access to a three-year SLTRO facility of ₹10,000 crores at the repo rate, which may be used for new lending of up to ₹10 lakhs per borrower.
This service is accessible until October 31, 2021.

What Do Experts Say?

Amit Goyal, CEO of India Sotheby’s International Realty, said, “We welcome RBI’s status quo on policy rates. This will mean a continuation of low home loan rates, which will keep the demand momentum for homes going. In the past couple of months, we have witnessed a further reduction in interest rates of home loans to 6.5 percent per annum by leading financial institutions.”

“Overall, we think that RBI has kept the room open for a reverse rate repo increase in the upcoming December policy. No changes are envisaged to the repo rate in the current fiscal and can only be addressed in FY 2022-23 after a thorough understanding of the evolving growth-inflation mix,” said Shishir Baijal, chairman and managing director at Knight Frank.

Following the RBI’s policy announcements, Sensex gained 381 points reaching 60,059.06, while Nifty saw a record close at 17,895.20.