RBI maintains status quo on key policy rates, but takes steps to manage liquidity
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Mumbai, Oct 08 As it was expected, the Reserve Bank of India (RBI) maintained status quo on key policy rates in its bimonthly policy review here today. It was followed by a three-day meeting of monetary policy committee (MPC), which was concluded this morning.
Thus, the policy repo rate, or the rate at which RBI lends to banks, is kept at 4 per cent after the six-member MPC voted unanimously in favour of a status quo, while the reverse repo rate remains at 3.35 per cent.
However, RBI has taken a host of measures for liquidity management in the system. RBI took the first step in winding down the emergency liquidity measures put in place to fight the pandemic induced slowdown.
Normalisation of extraordinary monetary policy has begun as the Governor Shaktikanta Das stopped the Government Securities Acquisition Programme aimed at containing bond yields, but he has said that it is no indication of reversal of easy monetary policy.
RBI has been taking measures to ensure ample surplus liquidity in the financial system to support growth and recovery, surplus liquidity levels have increased further in September.
"Potential liquidity amounts to more than Rs 13 lakh crore, as economy shows signs of emerging from Covid 19 inflicted ravages, a view is emerging that liquidity conditions instituted during crisis need to evolve in gradual calibrated and non-disruptive manner," Das said.
The comfortable liquidity situation and improved finances of the government mitigate concerns of higher borrowing to bridge the Good and Services Tax (GST) collections.
The liquidity conditions need to evolve with the macro-economic situation to ensure financial stability, said Das, adding that there is no need to continue with the purchase of government bonds through GSAP.
Commenting on RBI policy, Aditi Nayar, chief economist, ICRA said," Today's policy announcement was on expected lines, with a status quo on the repo and reverse repo rates as well as the accommodative stance, as well as a further step in the direction of liquidity normalisation with a pause in the G-sap and the calendar for VRRR auctions.
We continue to expect the MPC to maintain the repo rate and accommodative stance unchanged until demand side factors become the clear driver of inflationary pressures and start to harden inflationary expectations, in order to continue to nurture the demand recovery, she added. The Committee is likely to prefer to look through the surge in fuel costs, while continuing to nudge the Government to relook at fuel taxes, she added.
