Key Features of RBI Governor’s Statement, February 5, 2021

Sonal Pruthi

17 Feb, 2021

The article features the key features of the RBI Governor Statement issued on 5th February 2021.The article discussing the Governor’s decision of the repo rate and reverse repo rate. Here the RBI Governor Mr Shaktikanta Das has announced the MPC (Monetary Policy Committee^[1]) decision which has kept Repo rate and Reverse Repo rate unchanged.  The Monetary Policy Committee has kept the repo rate unchanged at 4% and voted unanimously to maintain the status quo with accommodative stance. Mr Shaktikanta Das has projected through RBI Report that the GDP growth rate will be 10.5% for the upcoming fiscal year.

The repo rate means the rate at which the commercial bank borrows money by selling their securities to the central bank of our country to the Reserve Bank of India to maintain their liquidity, in case of shortage of funds or some statutory measures. It is one of the tools to keep inflation under control. Whereas the reverse repo rate is the mechanism in which the Reserve Bank of India borrows money from the banks when there is excess liquidity in the market. The banks are benefitted from receiving interest for their holding with the central banks.

RBI Governor Statement

1. The Reserve Bank of India Governor commented that we had improved our outlook on growth significantly with positive growth impulses becoming broader-based and rollout of vaccination has immensely impacted the development, which is coming as the end of this Pandemic. The RBI Governor statement has released in the official statement that the inflation front, the Monetary Policy Committee has projected that the retail inflation in the current quarter of this fiscal has reduced to 5.2 per cent within the tolerance band of the RBI.
2. The RBI Governor Statement with the Monetary Policy committee announcements has shed light on the other measures over the working which has been adopted to strengthen the financial systems.
3. RBI Governor Statement has emphasised that the Central Bank has allowed the retail investors to invest in the Government securities after opening the Gilt Accounts.
4. The RBI has increased the Foreign Portfolio Investors to invest in the security receipts and debt instruments issued by the Asset Reconstruction Companies.  
5. The Central Bank shall assure the market and banks that it will continue to maintain the liquidity and restoration of the Cash Reserve Ratio (CRR)

Reason for the RBI Governor Statement over MPC Decisions

The Monetary Policy Committee has been enlisted the various reasons for keeping the repo and reverse repo rate unchanged:

1. They are normalising Monetary Policy– the Monetary Policy Committee keeping the repo rate and reverse repo rate unchanged. The liquidity measures increased and which is an increase in CRR. It is the first towards the process of normalisation of monetary policy. T
2. Rise of inflation– The increase in inflation results from the cost-push measures and rising petroleum prices.
3. Consumer inflation-The RBI Governor statement has emphasised over the consumer inflation and its maintenance. The upper end of the inflation index at the RBI end and the repo rate recording and keeping it at hold. No change in repo rate is keeping an eye on inflation and under control and pushing economic recovery in the coming months.
4. Real estate industry– the eyes are on the real estate sector thriving for the reduced rate of interest and demand for housing is reviving. The boom in the real estate sector is positive, as the real estate will dash the economy’s progress. The RBI stance is justified currently on consideration of exigencies of Pandemic.
5.  NBFC Funding– The RBI Governor statement has described over the NBFC and issued a consultative document to harmonise the regulatory framework applicable to various lenders. NBFC funding window will also benefit the declining sectors like real estate sector. The recent amendment change in the interest rates of home loans and has positively influenced the industry.  The keeping of low-interest rates will help to speed up the market growth sufficiently in the extended period. It has created momentum in the real estate sector, and it will make in the other sectors too.
6. Repo Rate at 4%- To bring the economy to pre-pandemic levels, the no-change policy by MPC of repo rate will influence the market. The stance is visible with the hike in CRR ratio.
7. Inflation at 6%- RBI Governor Statement clarified that it was the first time after Pandemic that inflation has been eased out 6 per cent.
8. TLTRO on tap scheme- according to this scheme, the NBFC was given tap scheme to ease the flow of credit in this sector. As in October the banks were allowed to take three-year loans at the repo rate to finance the suppressed sectors. This helps the banks to invest in the non-convertible debentures, bonds, and banks used their liquidity. The scheme provided the securities at the comfortable tenure. The availability of the scheme benefitted the real estate developers. The MPC extended this for banks to ease the retail customers who are intending to invest in the manufacturers. The opening of the schemes for NBFC is a favourable implication.

Conclusion

It can be concluded that the RBI Governor statements over the Monetary Policy Committee happen to affect the infrastructure sector. The key implementations involve bringing in the changes in the real estate sector. MPC has been focusing on stressed sectors like real estate. The real estate requires money supply. The unchanged repo rate is beneficial. It gives momentum to the home loan and keeping the interest rate lower has positively changed and picked the real estate. The worried about some point of inflation as RBI Governor Statement clarified that it is under control post-pandemic. The push the retail investors and investment in manufacturing, the policy will influence them too.

Read our article:Effect on Repo Rate by RBI