RBI's break on purchase of government securities

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- The Reserve Bank maintained interest rates and accommodation

(By commercial representative) MUMBAI: The Reserve Bank of India (RBI) today maintained key interest rates as expected at the end of a three-day monetary policy review meeting, but also signaled a phased withdrawal of stimulus measures announced during the Corona period. This was indicated by Reserve Bank Governor Shaktikant Das in view of the impending economic recovery. Growth rate estimates were maintained while inflation expectations have declined.

The Reserve Bank's six-member Monetary Policy Committee (MPC) unanimously maintained the repo rate at 4 per cent. The reverse repo rate was also maintained at 7.5 per cent. However, the decision to maintain the accommodative attitude was taken by a 2-1 vote, Governor Shaktikant Das said in an online statement.

The Reserve Bank has maintained low interest rates for the eighth consecutive time to support the economy of the country affected by the Corona. Since March 2020, the Reserve Bank has cut the repo rate by a total of 114 basis points.

The financial system currently has an additional liquidity of Rs 3 lakh crore, which the RBI has indicated will be adjusted in phases.

The Government Securities Acquisition Program (GSAP) for the purchase of government securities from the market has been suspended for the time being to prevent further liquidity in the market, he said. However, the move does not mean that the accommodative policy stance has been withdrawn, he stressed. The bond purchase program will be resumed when the need arises.

In the last two quarters, the RBI has bought government securities worth Rs 2.50 lakh crore. The Reserve Bank has poured a lot of liquidity into the financial system to accelerate the economic recovery during the Corona period. Liquidity in the financial system reached an average of Rs 3 lakh crore per day in September, compared to Rs 7 lakh crore in June-August. High levels of liquidity run the risk of increasing inflation. Inflation in the current year has remained largely higher than the Reserve Bank's four per cent.

The process of adapting the level of liquidity to macroeconomic developments will be carried out in stages and without any disturbance.

In its three-day meeting, the MPC maintained the country's economic growth forecast for the current financial year at 7.50 per cent, while lowering its retail inflation forecast from 7.50 per cent to 7.50 per cent.

Overall demand is rising, but the recession is still prevailing, the governor said. The output is still lower than the previous level of Coro and the recovery is uneven and is based on policy support.

Key points of the Reserve Bank's monetary policy review

* Repo rate maintained at 8% for the eighth consecutive time

* The economic growth rate for the current financial year has been kept unchanged at 7.50%

* Inflation projected reduced from 7.50 per cent to 7.50 per cent

* Government securities purchase program halted

* Solutions for digital payments will also be brought in offline mode

* An internal ombudsman scheme will be introduced to hear complaints from NBFC customers.

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