Key Highlights:

  • RBI Leaves Repo Rate unchanged at 4%
  • Reverse repo rate remains unchanged at 3.35%
  • Maintained an accommodative stance.
  • RBI Maintained its GDP Growth Forecast for FY22 at 10.5%.
  • Expects GDP to grow by 22.6% in Q1 FY22, by 8.3% in Q2 FY22 and 5.4% and 6.2% in Q3 FY22 and Q4 FY22 respectively.
  • Retail inflation seen at 5% in the fourth quarter, at 5.2% for Q1 FY22 and Q2FY22, and 4.4% and 5.1% in Q3 FY22 and Q4 FY22 respectively.
  • In February bi-monthly policy, the RBI had projected CPI inflation at 5.2 per cent in March quarter of FY21 (Q4FY21), 5.2-5 per cent in H1FY22 and 4.3 per cent in Q3FY22.
  • The kharif crop and movement of international commodity prices will have a bearing on the progress of prices.
  • Announced a new secondary market bond purchase programme (G- Sec 0 acquisition programme). For the first quarter of FY22, secondary market bond purchases of Rs 1 lakh crore have been announced.
  • Under the first tranche of the programme, touted as G-SAP 1.0, the RBI will purchase government bonds (G-sec) worth Rs 25,000 crore of April 15.
  • RTGS and NEFT membership to be allowed for non-bank payment institutions.
  • RBI extended the deadline for TLTRO on-tap liquidity scheme to September 30, 2021 from March 31.
  • RBI has decided to conduct VRRR auctions of longer maturity. The amount and tenor of these auctions will be decided based on the evolving liquidity and financial conditions.
  • RBI increased the maximum end-of-day balance limit for payment banks from Rs 1 lakh per individual to Rs 2 lakh with immediate effect.
  • The aggregate ways and means advance limit of all states and UTs will be enhanced to Rs 47,010 crore, an increase of 46%.
  • RBI to provide liquidity support of Rs 50,000 crore to all-India financial institutions.
  • The central bank proposed to constitute a committee to comprehensively review the functioning of asset reconstruction companies.
  • Cash withdrawal by full-KYC PPIs issued by non-bank users allowed.
  • Interoperability among full-KYC PPIs has been made mandatory, Das said, adding that current outstanding limit on these prepaid instruments doubled to Rs 2 lakh.

Outlook:

RBI decision to Leave Repo Rate unchanged at 4% was quite expected and hence the status quo was not a surprise. It also decided to continue with the accommodative stance as long as necessary to sustain growth on a durable basis and continue to mitigate the impact of Covid-19 on the economy. By G- Sec 1.0 acquisition programme RBI is trying to mitigate the liquidity issue on both sides – being either surplus or deficit – given the large borrowing of the government. This will keep the yield curve stable and free from volatility. The 10-year benchmark yield fell 12 basis points from the day’s high following the announcement. Bond yields have risen sharply since the Union Budget was announced in February. The government intends to borrow Rs 12 lakh crore from the markets this year. The RBI has again suggested that the government should do something on fuel taxes, as this has potential to lower not just the primary effect, but also the secondary impact on inflation of other goods that got affected due to transport costs going up.

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