Reserve Bank of India (RBI) Governor Shaktikanta Das said the policy stance continues to be “accommodative”. The Monetary Policy Committee (MPC) decided to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis. The MPC after taking all these factors into consideration, projection of real GDP growth is retained at 9.5 per cent in 2021-22. Real GDP growth for Q1: 2022-23 is projected at 17.2 per cent.

Inflation

CPI inflation edged up sharply to 6.3 per cent in May driven by a broad-based pick-up across all major groups. Recognising the inflation spikes, the RBI revised its inflation forecasts upward to 5.7% for 2021-22, and inflation for Q1: 2022-23 is projected at 5.1%. The spike in inflation was driven by a broad-based pick-up across major groups. RBI feels the revival of the south-west monsoon and pick up in kharif sowing, buffered by adequate food stocks should help in containing price pressures in the months ahead.

Liquidity

The Reserve Bank through its market operations, both conventional and unconventional, has maintained ample surplus liquidity since the onset of the pandemic to ensure easing of financial conditions in support of domestic demand. Buoyed by the renewed vigour of capital inflows and the Reserve Bank’s purchase of government securities in the secondary market, total absorption through reverse repos surged from a daily average of ₹5.7 lakh crore in June to ₹8.5 lakh crore in August 2021 so far (up to August 4).

The efficacy of RBI’s monetary policy measures and actions is reflected in the significant improvement in transmission during the current easing cycle. The reduction in repo rate by 250 basis points since February 2019 has resulted in a cumulative decline by 217 basis points in the weighted average lending rate (WALR) on fresh rupee loans.

Marginal Standing Facility (MSF)

Banks were allowed to avail of funds under the marginal standing facility (MSF) by dipping into the Statutory Liquidity Ratio (SLR) up to an additional one per cent of net demand and time liabilities (NDTL), i.e., cumulatively up to 3 per cent of NDTL. To provide comfort to banks on their liquidity requirements, including meeting their Liquidity Coverage Ratio (LCR) requirement, this relaxation which is currently available till September 30, 2021 is being extended for a further period of three months, i.e., up to December 31, 2021. This dispensation provides increased access to funds to the extent of ₹1.62 lakh crore and qualifies as highquality liquid assets (HQLA) for the LCR.

Conclusion

There is optimism with adequate pandemic protocols and ramp-up in the vaccination rate, RBI indicated we should be able to tide over a third wave, if it occurs. RBI overarching priority is that growth impulses are nurtured to ensure a durable recovery along a sustainable growth path with stability.