Here are the key takeaways of the Reserve Bank of India Governor Shaktikanta Das’ speech.
RBI cuts FY22 GDP growth forecast to 9.5%
Shaktikanta Das announced that RBI cut its economic growth forecast for the current financial year 2021-22 (FY22) to 9.5 per cent from 10.5 per cent. It reduced the first quarter (Q1FY22) GDP forecast to 18.5 per cent from 26.2 per cent. It further estimated GDP forecast at 7.9 per cent in the second quarter (Q2FY22), 7.2 per cent in the third quarter (Q3FY22) and 6.6 per cent in the fourth quarter (Q4FY22).
RBI keeps its rates unchanged
The RBI MPC unanimously kept the repo rate unchanged at 4 per cent. The reverse repo rate too was kept unchanged at 3.35 per cent, while the marginal standing facility (MSF) rate and bank rate were also kept unchanged at 4.25 per cent.
RBI sees retail inflation at 5.1%
The RBI governor said that the central bank projects the retail inflation or CPI (Consumer Price Index) at 5.1 per cent during FY22. He said that the RBI predicts the CPI at 5.2 per cent in Q1, 5.4 per cent in Q2, 4.7 per cent in Q3 and 5.3 per cent in Q4 with risks broadly balanced.
RBI to buy G-Sec worth Rs 1.20 lakh crore under G-SAP 2.0
Das said RBI will go for another round of the Government Securities Acquisition Program (G-SAP). He said that the central bank under G-SAP 1.0 will purchase of G-Secs of Rs 40,000 crore on June 17, 2021. Of this, he said that Rs 10,000 crore would constitute purchase of state development loans (SDLs).
Apart from this, the RBI decided to undertake G-SAP 2.0 in the second quarter of FY22 and conduct secondary market purchase operations of Rs 1.20 lakh crore to support the market.
He said that the specific dates and securities under G-SAP 2.0 operations will be indicated separately and added that he expects the market to react positively to the announcement.
The monetary policy committee (MPC), on October 8, kept the key lending rate, the repo rate, unchanged at 4 percent and retained the monetary stance as ‘accommodative’. This is the eighth consecutive time the MPC maintained a status quo in rates.
RBI Governor Shaktikanta Das said the central bank will ensure that inflation remains within the target range. He said the MPC’s policy rate decision was unanimous, while the decision on the stance was 5:1.
RBI MPC keeps repo rate, reverse repo rate unchanged. Repo rate unchanged at 4 percent while the reverse repo rate kept the same at 3.5 percent.
The projection for real GDP growth is retained at 9.5 percent for FY 2021-22. This consists of 7.9 percent in Q2, 6.8 percent in Q3, and 6.1 percent in Q4 of 2021-22.
The Real GDP growth for Q1 of FY 2022-23 is projected at 17.2 percent.
The central bank has lowered its FY22 CPI Inflation target to 5.3 percent from the earlier 5.7 percent. It also saw July-September CPI inflation at 5.1 percent compared to the 5.9 earlier. The October-December CPI Inflation is estimated at 4.5 percent compared to the 5.3 percent earlier.
The governor also said that India was in a much better place in October than in April, when the last MPC meeting had been held. Growth impulses are strengthening, inflation trajectory is more favorable than expected.
The recovery of the Indian economy is gaining traction; it is in better shape than the last MPC meeting. Growth impulses are strengthening, inflation trajectory favorable than anticipated; hope to sail towards normal times, due to resilience of economic fundamentals of our economy, he said.
Special three-year LTRO of Rs 10,000 crore for SFBs extended till December 31 and made available on-tap. Proposed to introduce a framework for retail digital payments in offline mode. It has also been proposed to raise the transaction limit on IMPS transactions to Rs 5 lakh from the current cap of Rs 2 lakh.
Auctions of the Variable Reverse Repo (VRR) will be increased from Rs 4 trillion to Rs 6 trillion every two weeks. RBI may hold a 28-day VRR auction in addition to the 14-day VRR auctions. The amount of liquidity absorbed in the first week of December through fixed-rate auctions is expected to be about Rs 2-3 trillion.
IMPS transaction limit raised to Rs 5 lakh, said Das.