MONETARY POLICY REPORT

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

Important points:

Unchanged Policy Rates:

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 retained the projection for Consumer Price Index (CPI) inflation at 5.3 %.
• It increased the amount of money it will absorb VRRR to Rs 7.5 lakh crore by the end of December 2021.
• In order to absorb additional liquidity in the system, the RBI announced conducting a VRRR program in August 2021 because it has higher yield prospects as compared to the fixed rate overnight reverse repo.
• RBI decided to continue with an accommodative stance until there is sustainable recovery in the economy.
• An accommodative stance means the MPC is willing to either lower rates or keep them unchanged.

Significance:

• It encourages more spending from consumers and businesses by making money less expensive to borrow through the lowering of short-term interest rates.
• When money is easily accessible through banks, the money supply in the economy increases. This leads to increased spending.
• It allows the fiscal reserve to increase in relation to national income and the positive function of money demand.
• It helps energize the national money stock and prevent a weak aggregate demand obviating an economic recession.
• Therefore it can be said that an accommodative stance will help improve India’s growth.

SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT