RBI BI-MONTHLY MONETARY POLICY

Policy Tools Pre PolicyFY22

Post Policy
(7 April‘21)
Status
April 7, 2021
Repo 4.00% 4.00%

Reverse Repo 3.35% 3.35%

RBI POLICY HIGHLIGHTS MSF 4.25% 4.25%

th

Ø RBI kept the Repo rate unchanged at 4.00%. Bank Rate 4.25% 4.25%
Ø Consequently, the Reverse Repo rate remained CRR 3.50% 3.50%
unchanged at 3.35%. 9.0%

Ø Bank rate and Marginal Standing Facility (MSF) SLR 18.00% 18.00%
remain unchanged at 4.25%. 8.0%

Ø CRR is maintained at 3.50% of NDTL. 7.0%

6.0%

OTHER KEY HIGHLIGHTS 5.0%

4.0%

Ø RBI has decided to conduct variable rate reverse repo 3.0%

(VRRR) auctions of longer maturity. The amount and tenor 2.0%
of these auctions will be decided based on the evolving
liquidity and financial market conditions. RBI POLICY RATES TREND
Repo Reverse Repo CRR
Ø RBI announced a secondary market G-sec acquisition
programme or G-SAP 1.0. Under this programme, the RBI
Apr-15
Aug-15
will make an upfront commitment to purchase a specific Dec-15
amount of government securities through the open market.
Apr-16

For Q1FY22, it announced a G-SAP of ` 1 trillion. The first

Aug-16

purchase of government securities for an aggregate amount of

Dec-16

` 250 billion under G-SAP 1.0 will be conducted on April 15,

Apr-17
Aug-17

2021.
Dec-17

Ø The TLTRO on Tap Scheme, which was available up to

Apr-18

March 31, 2021, is now being extended upto

Aug-18

September 30, 2021.

Dec-18
Apr-19

Ø Special refinance facilities have been extended to All

Aug-19

India Financial Institutions (AIFIs) like NABARD,

SIDBI, NHB, and EXIM bank to provide liquidity
support of ` 500 billion for fresh lending during FY22. This HEADLINE CPI INFLATION TREND (% YOY)
includes an amount of ` 250 billion to NABARD,
` 100 billion to NHB, and ` 150 billion to SIDBI.
-15-15
-15Feb

%YoY
Ø Permitting Banks to On-lend through NBFCs: To enable CPI Inflation Core inflation
-15May

10 %
-16Aug

credit availability to the last mile, bank lending to

-16Nov

8% RBI Inflation Target Band

registered NBFCs (other than MFIs) for on-lending to
-16Feb
-16May

6%
Agriculture, MSME, and Housing was permitted to be
-17Aug

classified as Priority Sector Lending (PSL). This

-17Nov

4%
-17Feb

5. 0 3%
dispensation, which was available till March 31, 2021, is now
-17May

2%
-18Aug

extended up to September 30, 2021.

-18Nov

0%
-18Feb

Ø The aggregate Ways and Means Advance (WMA) limit of

-18May

states and UTs has been enhanced by approximately

-19Aug
FebNov

46% to ` 470 billion, from the current limit of ` 322.25

billion. Further, it has also been decided to continue
the enhanced interim WMA limit of ` 515.60 billion granted by the RBI in the wake of the pandemic, for a
period of six months, i.e., up to September 30, 2021.
Ø Real GDP growth estimate for FY22 is retained at 10.5% with growth for Q1FY22 estimated at 26.2%,
Q2FY22 at 8.3%, Q3FY22 at 5.4%, and Q4FY22 at 6.4%.
Ø CPI inflation is now projected at 5.0% in Q4FY21; 5.2% in Q1FY22, 5.2% in Q2FY22, 4.4% in Q3FY22 and
5.1% in Q4FY22, with risks broadly balanced.

POLICY STANCE
The Monetary Policy Committee (MPC) of the RBI voted unanimously in favour of keeping the policy repo rate
unchanged and agreed to continue with the accommodative stance for as long as necessary to revive growth on
a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains
within the target going forward.
OUTLOOK:

In line with our expectation, the RBI’s MPC
unanimously voted to keep the policy rate unchanged
for the fifth consecutive time, while maintaining its
accommodative policy stance. RBI tweaked its
forward guidance from a ‘time-based’to a ‘state-
based’guidance, in view of the COVID-19 situation in
India and evolving economic growth.
RBI retained its FY22 GDP growth projection after
taking into consideration the ongoing vaccination
drive, fiscal stimulus provided in the Union Budget,
and increased traction around the PLI scheme.
However, it highlighted that the dip in consumer
confidence due to the recent increase in COVID-19
case and localized lockdowns, can lend uncertainty
to growth outlook.
On the inflation front, RBI drew comfort due to
bumper Kharif output, strong incoming Rabi harvest
arrivals, and an increase in the imports of certain
food products. The RBI cautioned against increase in
international commodity prices and increased
logistics costs across manufacturing and services
sector.
In a bid to provide more certainty to bond markets,
the RBI announced a secondary market G-SAP 1.0.
For Q1FY22, it announced G-SAP of INR1 trillion.
RBI is committing ex ante, to seemingly provide more
comfort to the bond market in light of the
government’s elevated borrowing for this year. This is
an important development as it provides the required
visibility. The G-SAP 1.0 will run alongside other
instruments of the RBI, namely longer-term
repo/reverse repo auctions, forex operations,
operation twist, and other OMOs. The move was well
received, and the long end of the bond yields
softened post policy announcement.
We believe that the RBI may embark on a gradual exit
from the prevailing loose monetary policy stance
once the current pandemic wave subsides, and the
vaccination drive reaches critical mass during
H2FY22. We expect RBI increase the reverse repo
rate in H2FY22. We believe that the short to medium
segment of the curve is attractive as the yields in the
short to mid part of the curve are reasonably priced
with modest duration. Even with yields tending to
inch up, the higher accrual should provide a buffer to
mitigate some of the erosion in price due to firming
yields.

Source: RBI, MOSPI.

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