EforexIndia Update 08/10/2021
The Monetary Policy Committee voted unanimously to keep Reserve Bank of India’s key lending rate – the repo – unchanged while voting 5 to 1 majority to continue with the ‘accommodative’ stance as long as necessary to revive growth till the impact of COVID-19 on the economy is mitigated.
MPC vote unanimously to keep repo rate unchanged at 4%
MPC voted 5 to 1 majority to continue with accommodative stance as long as necessary to mitigate the impact of COVID-19 on the economy
Reverse repo rate stands at 3.35%; MSF and Bank rate at 4.25%
India is in a much better position than at the time of MPC’s August meeting
The recovery of the Indian economy is gaining traction
Growth impulses seem to be strengthening and we derive comfort from the fact that the inflation trajectory is turning out to be more favourable than anticipated
Economic activity has evolved as per Aug assessment and outlook, while inflation turned out to be lower than anticipated
The minutes of the MPC’s meeting will be published on Oct 22, 2021.
The next meeting of the MPC is scheduled during Dec 6 to 8, 2021
Economic recovery has gained momentum, supported by ebbing of infections, the robust pace of vaccination, expected record kharif foodgrains production, government’s focus on capital expenditure, benign monetary and financial conditions, and buoyant external demand
Aggregate demand is improving but slack still remains; but output is still below pre-pandemic level and recovery remains uneven
Recovery dependent upon continued policy support
Contact intensive services still lagging
Recovery in aggregate demand gathered pace in August-September
The pent-up demand and the festival season should give further fillip to urban demand in the second half of the financial year
Rural demand to get impetus from resilience of agri sector, record kharif production
Recovery in the services sector is also gaining traction
Real GDP growth projection is retained at 9.5% in 2021-22 consisting of 7.9% in Q2 unchanged from August policy; 6.1% in Q3 vs 6.3% in August policy; and 6.1% in Q4, unchanged from August policy.
Real GDP growth for Q1 FY23 projection remains unchanged at 17.2%
CPI headline momentum is moderating and would soften further in near-term on favourable base effects in the coming months
Key driver of the disinflation has been the moderation in food inflation even as fuel inflation edged up and CPI inflation excluding food and fuel inflation (core inflation) remained elevated
Cereal prices are expected to remain soft due to likely record kharif foodgrains production and adequate buffer stocks
Vegetable prices, a major source of inflation volatility, have remained contained in the year so far with record production and supply side measures by the Government.
CPI inflation is projected at 5.2% in FY22 versus 5.7% projected in August policy: 5.1% in Q2 versus 5.9% in August policy; 4.5% in Q3 vs 5.3% in August; and 5.8% in Q4 unchanged from August policy of 2021-22, with risks broadly balanced.
CPI inflation for Q1 FY23 is projected at 5.2% versus 5.1% projected in August policy
Liquidity condition should evolve in sync with the macroeconomic development to preserve financial stability.
This process has to be gradual, calibrated and non-disruptive, while remaining supportive of the economic recovery.
No need to undertake G-SAP at this junction, but RBI ready to undertake G-SAP as and when warranted including OT and OMO 
14-day VRRR to remain main instrument under liquidity management framework
RBI to undertake 14-day VRRR on fortnightly basis viz Rs 4.5 lakh crore on Oct 22; Rs 5 lakh crore on Nov 3; Rs 5.5 lakh crore on Nov 18 and Rs 6 lakh crore on Dec 3.
RBI may also conduct 28-day VRRR auction in similar calibrated fashion
VRRR auctions are primarily a tool for rebalancing liquidity as part of our liquidity management operations and should not be interpreted as a reversal of the accommodative policy stance 
RBI’s on tap special long-term repo operation of Rs 10,000 crore at repo rate for small finance banks facility extended till Dec 31
To introduce framework for retail digital payment in offline mode across the country. 
RBI enhances transaction limit in Immediate Payment Service (IMPS) for instant domestic funds transfer facility to Rs 5 lakh from Rs 2 lakh
Extends the earlier WMA limit of Rs 51,560 crore including enhancement of maximum number of days of overdraft in quarter from 36 to 50 days till March 31, 2022