MONETARY POLICY REPORT

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• The Reserve Bank of India (RBI) has released the Monetary Policy Report (MPR) for the month of October 2021.
• It kept the policy rate unchanged for the Eighth time in a row maintaining an accommodative stance till the recovery is durable.

Important points:

1. Repo Rate – 4%.
2. Reverse Repo Rate – 3.35%.
3. Marginal Standing Facility (MSF) – 4.25%.
4. Bank Rate- 4.25%.

GDP Projection:

• Real Gross Domestic Product (GDP) growth for 2021-22 has been retained at 9.5%.
• RBI has revised the projection for Consumer Price Index (CPI) inflation to 5.3% from 5.7% in August 2021.
• It has shut down the GSAP citing the liquidity overhang (Excess liquidity), increasing liquidity due to government spending and absence of higher borrowing for Goods and Services Tax compensation.
• It is part of RBIs Open Market Operations, where it commits to a specific amount of Open Market Purchases of government securities.
• The first purchase for an aggregate amount of Rs. 25,000 crore under G-SAP 1.0 was conducted in April, 2021.
• But has assured that it would continue to flexibly conduct other liquidity management operations, including Operation Twist (OT) and regular Open Market Operations (OMOs).
• OT is when the central bank uses the proceeds from the sale of short-term securities to buy long-term government debt papers, leading to easing of interest rates on the long term papers.
• It decided to continue with an accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward.
• An accommodative stance means a central bank will cut rates to inject money into the financial system whenever needed.

Monetary Policy Report

• It is published by the Monetary Policy Committee (MPC) of RBI. It is a statutory and institutionalized framework under the RBI Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.
• It determines the policy interest rate (repo rate) required to achieve the inflation target of 4% with a leeway of 2% points on either side. The Governor of RBI is ex-officio Chairman of the MPC.

SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT