Monetary Policy Report: RBI

Q.Why is this in News?

A. The Reserve Bank of India (RBI) has released the Monetary Policy Report (MPR) for the month of August 2021.

• It kept the policy rate unchanged for the seventh time in a row. And appealed to the centre and states to reduce taxes on fuels to curb inflationary pressures.

Q. What is Monetary Policy Report?
A. 

• The MPR is published by the Monetary Policy Committee (MPC) of RBI.
• The MPC is a statutory and institutionalized framework under the RBI Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.
• The MPC 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.

Q. What are the policy rates?

A. Unchanged Policy Rates:

• Repo Rate - 4%.
• Reverse Repo Rate - 3.35%.
• Marginal Standing Facility (MSF) - 4.25%.
• Bank Rate- 4.25%.

Q. What are the GDP and Inflation projection?
A. 

• Real Gross Domestic Product (GDP) growth for 2021-22 has been retained at 9.5%.
• Inflation:.
  • RBI has revised the projection for Consumer Price Index (CPI) inflation to 5.7% from 5.1%.

Q. What is Variable Rate Reverse Repos?

A. 

• In order to absorb additional liquidity in the system, the RBI announced conducting a Variable Rate Reverse Repo (VRRR) program due to the higher yield prospects as compared to the fixed rate overnight reverse repo.
  • The RBI has decided to increase the quantum under the VRRR to Rs 4 trillion in a phased manner.
• It also extended the liquidity support to banks to lend to stressed businesses by another three months to 31th December 2021.

Q. What are the Interest Rates?
A. 

• Elevated inflation level and delayed recovery in the economy has prompted the panel to keep rates steady. Interest rates in the banking system are expected to remain stable in the next couple of months.
• Recovery faced rough weather due to the Covid second wave and lockdowns in states

 Accommodative Stance:  

• 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.
• Optimism For Recovery:
  • Resilient Demand:
    • After the second wave of infections, domestic economic activity had started to recover with accelerated vaccination.
  • Economic Package:
    • Although investment demand is still anaemic, improving capacity utilisation, rising steel consumption, higher imports of capital goods, congenial monetary and financial conditions and the economic packages announced by the central government are expected to kick-start a long-awaited revival.
  • High Frequency Indicators:
    • High-frequency indicators (electricity consumption, nighttime lights intensity and nitrogen dioxide emissions) suggest that consumption (both private and Government), investment and external demand are all on the path of regaining traction.