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MOSL: ECOSCOPE-Monetary policy continues to prioritize growth; as RBI believes current inflationary pressure is “transitory”

ECOSCOPE: Monetary policy continues to prioritize growth; as RBI believes current inflationary pressure is “transitory”

 

• The Monetary Policy Committee (MPC) resolution was in line with expectations, with the policy repo rate unchanged at 4%. The reverse repo and Marginal Standing Facility (MSF) rates were also kept unchanged at 3.35% and 4.25%, respectively. While the decision on rates was unanimous, that on maintaining an accommodative stance was decided based on a 5:1 majority. Prof. Jayanth R. Varma was the only one who expressed his reservations on the accommodative stance.
• Inflation projections were revised up to 5.7% in FY22, from ~5.1% targeted earlier, in line with our . The growth forecast, on the other hand, was kept unchanged at 9.5% YoY in FY22.
• The RBI extended the deadlines of certain liquidity measures announced in previous policies. These include (a) two more secondary market G-sec acquisition program (G-SAP) auctions of INR250b each on 12th/26th Aug'21 under G-SAP 2.0, (b) on-tap Targeted Long-Term Repo Operations (TLTRO), which have been extended up to 31st Dec'21, and (c) the Marginal Standing Facility (MSF) limit of 3% of Net Demand and Time Liabilities (NDTL), which is also available up to 31st Dec'21.
• The RBI decided on the status quo for the seventh time in a row. The committee reiterated its intention to keep monetary policy accommodative for the foreseeable future and its commitment to prioritizing growth. The RBI believes the available data points towards exogenous and temporary supply shocks, which are driving inflation higher, validate the MPC's decision to look past it. In the face of an unresolved global pandemic, the RBI is likely to keep depending on incoming data points and take monetary policy decisions accordingly.