Monetary Policy Dec – 21

Every monetary policy begins with the projection of Repo Rates. Repo rate is the rate at which the central bank lends money to the commercial banks in hypothecation of the securities. Reverse Repo rate is the rate offered by RBI to commercial banks for depositing the money. Now, there are certain times when commercial banks aren’t able to offer securities against the loan due to which central bank has to lend money at a much higher rate, such a scenario is often recognized as MSF (Marginal Standing Facility).

Mr. Shaktikanta Das, governor of the Reserve Bank of India, on Wednesday held its bi-monthly monetary policy for December 21. Much of the points discussed in the monetary policy were already predicted by some major industrialists so most of them didn’t perceive it as a shocker.

To start with, Repo Rates remain unchanged for 9th time in a row at 4% and Reverse Repo rate stood at 3.35%. Meanwhile, MSF (Marginal Standing Facility) was maintained at 4.25%. The reason for no change in the interest rates have been justified by 6-member bench, in majority of 5 who have agreed on accommodative stance “to revive and sustain growth on durable basis”.

The framework of this policy validates that new threat from Omicron has not caused the Repo Rate to change. In an ideal scenario, if there is any threat to the economy wherein it can cause a collapse, lending rates are reduced in order to aid the economy from the scars and to provide a better flow of liquidity through the market.

Mr. Shaktikanta Das mentioned for all the four consolidated quarters, GDP collectively stands for FY 21-22 at 9.5%. Meanwhile, Quarter 3 (Oct-Dec) is expected to hover around 6.6% and for Quarter 4 (Jan-Mar) the prediction stands at 6%. Optimistic numbers where shared for the projection of GDP for the upcoming FY 22-23 with Quarter 1 standing at 17.2% and consecutively for Quarter 2 at 7.8%.

RBI GDP PROJECTION


CURRENTEARLIER
FY-229.50%9.50%
Q3 FY-226.60%6.80%
Q4 FY-226.00%6.10%
Q1 FY-2317.20%17.20%
Q2 FY-237.80%

Projection for Consumer Price Index (Inflation)

CURRENTEARLIER
FY-225.30%5.30%
Q3 FY-225.10%4.50%
Q4 FY-225.70%5.80%
Q1FY-235%5.20%

Some major points of discussion:

  • Recent Tax Cuts on petrol/diesel should support consumer purchasing power.
  • Government focusing on Capex should help boost investment in the country.
  • UPI has increased the cap from Rs. 2,00,000 to Rs. 5,00,000 for Gilt Retail transactions.
  • Private consumption is still below pre-pandemic levels.
  • Rural demand and farm employment has picked up its pace.
  • Prospects of economic activities are steadily improving.
  • There has been significant deleveraging of corporate balance sheet.
  • Domestic economic outlook somewhat clouded by the Omicron variant.

By Aryan Manwani & Bhavesh Rohra

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