The monetary policy continues to be growth centric, despite the underlying upside risks to inflation. This is so as it believes that the inflation today is short-term in nature while growth has to protected for long term sustainability.
- Policy rate retained at 4%, which is the lowest level in over a decade
- The overall tone of the policy was supportive to the economy and markets alike. Monetary policy geared towards aiding economic revival on a durable basis.
- Surplus liquidity conditions in the system to be maintained and sustained
- Ensure availability of adequate funds to aid economic recovery
- Fund availability for lending to productive sector:
- On-tap TLTRO to NBFC to continue
- Refinance facility for All India Financial Institutions (AIFs)
- Prevalence of underlying inflationary pressures not to come in the way of accommodative monetary policy
- Revival of economy growth taking precedence.
- Inflation to range between 4.1% to 5.2% in FY22. Both upside as well downside pressures prevail.
- Economic growth outlook for FY22 retained at 10.5%. Quarterly breakup provided for the first time. Outlook factors the uncertainty on account of the recent surge in Covid infections, resilient rural demand and expectation of normalization of activity with the vaccination programme.
Policy Announcement and Impact
- Extension of deadline of on tap- TLTRO Scheme by a period of 6 months till 30 September’21, this will help and Ensures availability of funds for the designated sector i.e. the 26 stressed sectors and NBFCs.
“on tap targeted long term repo operations (TLTRO)” scheme for banks, with tenors of up to three years for a total amount of up to Rs one lakh crore at a floating rate linked to the policy repo rate.
- Special refinance facility of Rs.50,000 crore to All India Financial Institutions (AIFIs) to facilitate fresh lending in FY22. Under this facility NABARD is to receive will makes available funds for agriculture and allied activities, rural non-farm sector, NBFCMFIs, housing sector and MSMEs.
- Permitting banks to on lend through NBFCs under priority sector lending till 30 September’21
- VRRR (Variable rate reverse repo) auctions of longer maturity to be conducted to manage liquidity, this will help to absorb surplus in the system and bring stability in the markets.
- Ways and Means Advances (WMA) limit for states and UTs enhanced to
Rs.47 010 crore, 46% increase from current limit that was fixed in February’16. Also, the enhanced interim WMA limit (of Rs.51560 crore) due to pandemic to be extended by 6 months till 30 September’21.This could come to the aid of states who seek this facility to meet their short-term fund requirements. It could also result in lower borrowing through SDL issuance in case of some states as they come at a lower cost.