RBI?s Monetary policy

RBI’s Monetary policy

News: 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.
 

Details:
• 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.
• RBI has shut down the GSAP citing the liquidity overhang (Excess liquidity), increasing liquidity due to government spending and  bsence 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.
• VRRR auction size has been enhanced to Rs 6 trillion by early December 2021 and opened itself up to increasing the VRRR duration to 28 days if need be.
• 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.