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RBI Announces Monetary Policy for FY 2021-22

RBI Monetary policy 2021: Based on an assessment of the current and evolving macroeconomic situation the monetary policy committee at its meeting today decided to keep the repo rate under the liquidity adjustment facility at 4.0 percent.

The monetary policy committee of India

It is a six-member committee. In this, there are three RBI members, and three nominated members by the government which is headed by the RBI governor.

There are few terms and theory we will discuss which will help us understand the monetary policy. And we will also understand how RBI policies are helping to sustain our GDP. The central bank lowered down the GDP to 9.5%.

Repo rate is an important factor. To maintain the GDP it is the same for the 6th time. Repo rate is the rate at which the bank can take loans from RBI. In this way, RBI will give loans to banks at low rates and as a result, the bank will provide loans to the public at low rates.

What RBI says about Repo Rate?

RBI says, how the second wave of Covid-19 came, has changed the outlook. We have to track other ways for example- active monitoring and time measures because they are essential to support the GDP. We need all kinds of supports like fiscal, monetary, or sectorial to come to normal situations again.

CPI Estimate Chart

Estimation of CPI

Inflation Trajectory

To control inflation, we need to increase the repo rate. RBI says that inflation is not a concern, for now. To understand this, we need to know what the Average inflation should be? The average inflation should be only 4%. This year it will be 5.4% in quarter two.

Graph

The inflation trajectory will go upside as there is a rise in international prices of crude oil, logistics costs, etc. Above all, the central and state govt. are told to lower the excise duties, cess, and to keep a check on edible oil prices, pulse market.

What is G-SAP?

G-SAP is a Government Security Acquisition program that includes purchasing and selling of bonds.

RBI is purchasing bonds of 1.20 lac crores from the market. In conclusion, the market will regain liquidity. Moreover, RBI has already purchased the 60,000 crores of bond under the first G-sap. Hence, liquidity of 60,000 crores is already have come to the market.

For more updates like these, keep watching this space!