The monetary policy committee (MPC) on Friday decided that the RBI policy rates would remain unchanged. Therefore, the repo rate will be maintained at 4% while the reverse repo rate will be maintained at 3.35% like before. The accommodative policy stance will also continue to maintain the affirmative position as it was before. The decision comes days after the union budget session for the fiscal year 21-22.
Policies remain unchanged but managing bond market liquidity still a thing to worry
Though the new policy remains unchanged, major economists in the country judge RBI’s decision because it continues to include government bonds instead of targeting global bonds. A senior economist said, “Tapping into domestic savers for government bonds is probably ten-times bigger than inclusion in a global bond index. Because domestic savers never cause external crises and are a very stable, potentially inexhaustible, source of funds for the government”. He further added, “The CRR was reversible, and in all likelihood would be replaced by even more open market operations than last year’s Rs 3 trillion. There have been many other subtler liquidity measures, such as letting the marginal standing facility (MSF) extension for one more year which can be counted in the liquidity coverage ratio, letting fresh MSME lending calculation out of the CRR calculation…the market should not have panicked”.
Zarin Daruwala on the RBI policy
Standard chartered bank CEO, Zarin Daruwala has commented on the RBI policy and expressed her concern over the government’s borrowing plan. She says, “As expected, the MPC continued with its accommodative stance and clearly indicated its intent to remain supportive of growth as long as was required. The deferral of the Marginal standing facility and Net stable funding ratio measures will provide a fillip to economic growth and monetary transmission. Moreover, by becoming one of the few economies in the world to provide retail investors a direct avenue to invest in government securities, the RBI has both opened up a new retail savings avenue and a potentially large source of diversification for the government’s borrowing plans. Introduction of lending to new MSME customers without statutory requirements as well as the extension of the targeted long-term repo operations window for NBFCs will improve credit delivery to these segments, with the relief on the capital conservation buffer providing balance sheet room to banks.”
The action was taken keeping the covid-19 crisis in mind
The RBI governor has taken this action keeping the pandemic situation in mind that caused huge economic losses to the country and across the globe as well. Mr. Shaktikanta Das said, “the MPC judged that the need of the hour is to continue to support growth, assuage the impact of COVID-19 and return the economy to a higher growth trajectory”, pointing at the decision taken by the reserve bank of India team. Hinting at RBI’s view at always maintaining its stance against the economic slowdown, chief economist of NSE Tirthankar Patnaik said, “The RBI’s upbeat views on the economy along with sustained cost-push pressures on inflation fortifies our stance of no rate cuts in the foreseeable future, notwithstanding sustenance of an accommodative stance”.
The Policy Times Policy suggestionS
- Retail investors and the MSMEs can benefit a lot from this new policy but it must also be taken into consideration that the RBI governor announces no other additional measures on liquidity in his address regarding the policy.
- The relaxation on banks so that they can invest more in government bonds comes as no shock for the economists because after all the government holds the key to bettering the economic condition of the country.