The latest buzz is that the six-member Monetary Policy Committee (MPC) chaired by Reserve Bank of India (RBI) Governor Shaktikanta Das has decided to keep the repo rate unchanged at 4 per cent, while the reverse repo rate also was kept unchanged at 3.35 per cent. For the last two years, some changes had been anticipated in this direction but nothing concrete had been discussed in the recent past. In the wake of this recent announcement, it would be insightful to see what the Central Bank Governor has announced in the same regard.
The central bank governor said that the MPC had voted unanimously to maintain the accommodative stance and added that the reverse repo rate too was kept unchanged at 3.35 per cent. This means that monetary Policy Committee stays undivided on how they want new policies to be accepted by the people for whom they are made in the first place. For the uninitiated once, it is important to understand what does Repo Rate mean. In simple words, it is a repurchase agreement that allows short term borrowing, primarily in government securities.
Interestingly, with the same degree of consensus, even the MSF i.e. the Marginal Standing Facility rate and the bank rate also were kept unchanged at 4.25 percent. The RBI had last revised its policy repurchase agreement or the short-term lending rate on May 22, 2020, in an off-policy cycle. This was done in order to perk up demand by cutting the interest rate to a competent price. One can easily observe that this step has been appreciated by everyone who has wanted or wants to invest in properties and needs financial aid. If that financial help comes with governmental assurance, there is certainly nothing better than that.
Addressing the media after the monetary policy meeting, Das said that RBI will restore the liquidity adjustment facility (LAF) corridor to 50 bps, as it was pre-Coved. The intention of course is to ensure the people that they can still continue to make the decisions based on their present financial planning quite effectively. A closer observation suggests that such transparent and collaborative steps are mutually beneficial: while it helps people finding a reliable source to lend money from at a decent rate of interest, it also consolidates the positioning of Monetary Policy Committee.
Additionally, it has been proclaimed by the governor that the floor of the corridor will now be given by the newly instituted standing deposit facility (SDF), which will be placed at 3.75 per cent. It also decided to remain harmonious and receptive to the people’s requirement while focusing on withdrawal of accommodation to ensure that the people can keep inflation in check while continuing to grow on economical parameters simultaneously. Many of the experts have also suggested that the excessive volatility in global crude oil prices
since late February will make it challenging for the decision makers to consider growth and inflation at the same time. Indeed, it cannot be denied that any projection of growth and inflation will of course come with risk, and can have some impact on future oil and commodity price developments. However, one has to take some risks so as to explore new avenues and grow further in the domain. In this context, even the governor of RBI had added RBI will continue to adopt a nuanced and an easily implementable approach to liquidity management while maintaining adequate liquidity in the system.
It would perhaps not be wrong to deduce therefore that though RBI has decidedly been quite stringent about its rules and regulations, it has turned a little mild in the recent past. While some people appreciate this softened attitude while some blame it on the current affairs. It would not be wrong to deduce that the current geopolitical events, supply chain issues and commodity price inflation are tying the hands of RBI and forcing it to gradually turn a little amiable although it would like to continue with its pro-growth outlook. It is for all of us to see what the future holds for us but if the present scenario has to be considered, the people have unanimously welcomed this sustainable and stable approach for now. And needless to say, the collective desire is to see it getting further inclined towards the welfares of investors, lenders and everyone else involved in the process.
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