Page 12 - Banking Finance June 2021

RBI CORNER

"We are nowhere near such a scenario," cast, but the RBI can still hold out with monetary policy accommodative as
he said. India's economy contracted by a firm message of ratcheting up long as necessary to revive and sustain
less-than-expected 7.3 per cent in the inflationary pressures in the August growth on a durable basis.
fiscal ended March 2021. For 2021-22, policy statement." In May, the CPI-
the deficit has been put at 6.8 per cent based inflation hit a six-month high of RBI retains benchmark
of the GDP, which will be further lowered 6.3%, from April's 4.3%, breaching
to 4.5 per cent by 2025-26. The Reserve RBI's comfort band of 2-6%. In the rates
Bank has lowered the country's growth second bi-monthly monetary policy RBI chose to stick to the script at the
projection for the current financial year announced on June 4, the central bank monetary policy meeting, retaining
to 9.5 per cent from 10.5 per cent left the repo rate unchanged at 4% benchmark rates where they were
estimated earlier, amid the through last several policy calls. The
uncertainties created by the second RBI to focus on growth repo rate was kept at 4 per cent,
wave of the coronavirus pandemic, while even as inflation breaches indicating that the central bank's
the World Bank projected India's dovish stance will continue in order to
economy to grow at 8.3 per cent in 2021. tolerance band help an economy battling for revival.
According to Subbarao, when people The Reserve Bank ofIndia is unlikely to The reverse repo rate (RBI's borrowing
rate) was retained at 3.35 per cent.
say the RBI should print money to react yet to multi-month high retail The MPC voted unanimously to keep
finance the government's deficit, they prices as economic recovery remains the repo, the reverse repo and all
don't realise that the central bank is its prime focus amid the deadly second other rates unchanged, Governor
printing money even now to finance wave of the pandemic, according to Shaktikanta Das said.
the deficit, but it is doing so indirectly. two senior sources aware of the
For example, he said, when the central bank's thinking. The annual The growth projection for FY22 was
Reserve Bank of India buys bonds retail inflation rate rose 6.30% year- scaled down to 9.5 per cent in view of
under its open market operations on-year in May, up from 4.29% in April the pain inflicted by Covid's second
(OMOs) or buys dollars under its forex and sharply above analysts' estimate of wave. The stance will continue to be
operations, it is printing money to pay 5.30%. The wholesale price inflation accommodative, Das said. Earlier, RBI
for those purchases, and that money rate rose 12.94%, its highest in at least had pegged its growth forecasts for
indirectly goes to finance the two decades. "There is a broad-based this financial year at 10.5 per cent.
government's borrowing. increase in CPI inflation but it still is not There were expectations that the
driven by demand and that gives the forecast could be lowered, given the
RBI to maintain status quo RBI some leeway. They will continue to recent hit of the second-wave
wait and watch as a rate hike is out of lockdowns on economic activity. Some
in August meet question for now," the first source said. economists, however, had said that
With retail inflation witnessing an India's economy grew 1.6% in the there might not be any change to the
uptick in May, the Reserve Bank will March quarter compared with the forecast, given a recent series of
most likely maintain status quo in its same period a year earlier, but that positive news such as a normal
August monetary policy review. monsoon, rising vaccinations and a
was before a massive second wave of
According to the Ecowrap report, infections hit the country which comeback of pent-up demand.
inflation may remain on the higher prompted fairly stringent lockdowns The governor said that while the latest
side for a few months because of
across most states causing another inflation scenario provides some elbow
several global and domestic factors.
round of job losses and a significant room to policymakers, support will be
"We expect a status-quo in August. We dent to demand. Asia's third-largest needed from all sides for the economy
believe RBI would still try to find a economy has now reported 29.57 to regain momentum. The MPC now
marriage of convenience of regulatory million COVID-19 cases and 377,031 sees CPI inflation at 5.1 per cent in
and developmental measures and deaths, though some experts believe 2021-22; 5.2 per cent in Q1, 5.4 per
monetary policy in August policy," the the actual numbers are far higher. The cent in Q2, 4.7 per cent in Q3 and 5.3
research report said.
central bank earlier this month per cent in Q4. It had earlier pegged
It also noted that "the die has been reiterated its commitment to keeping it at 5.2 per cent for Q1 and Q2, 4.4

12 | 2021 | JUNE | BANKING FINANCE