Shaktikanta Das 5 unveiled a growth-focused monetary policy

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Shaktikanta Das

The Reserve Bank of India (RBI) Governor Shaktikanta Das on February 5 unveiled a growth-focused monetary policy, once again assuring the market that the central bank would ensure adequate liquidity to shore up the economy and nudge banks to lend more to smaller firms.

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The monetary policy committee (MPC) left unchanged the key lending repo rate—at which banks borrow from RBI—in an expected move. The policy stance, both in terms of monetary policy and liquidity management, will continue as “accommodative”, reaffirming the willingness to support growth, Shaktikanta Das said. Markets cheered the move.

The RBI has projected a GDP growth of 10.5 percent in FY22 in line with what the Economic Survey and the Budget predicted. Economists called the growth projection realistic.

But more than rate action, markets were awaiting announcements on the liquidity front and the central bank didn’t disappoint. Das announced a range of measures to ensure comfortable systemic liquidity amid record-high borrowing.

“The RBI will persevere with its paramount objective of reviving the economy,” Das said, announcing the monetary policy at the end of the two-day meeting.

“Gross market borrowing of the Centre for 2021-22 is budgeted at Rs 12 lakh crore. As the government’s debt manager and banker, the Reserve Bank will ensure the orderly completion of the market borrowing programme in a non-disruptive manner,” the Governor said.

Top economists cheered the policy.

“They have ticked all the right boxes and made the right noises,” said DK Joshi, chief economist at rating agency Crisil. “The RBI has done as much as it could do to support growth and the large government borrowing. The measures announced give comfort to the markets,” said Joshi.

The RBI announced a slew of measures to support liquidity and credit growth to productive sectors. These include extending the TLTRO funding to NBFCs and extending the Marginal Standing Facility (MSF) by another six months.

The RBI also extended the dispensation of enhanced HTM of 22 percent up to March 31, 2023 to include securities acquired between April 1, 2021 and March 31, 2022. The HTM limits would be restored from 22 percent to 19.5 percent in a phased manner, starting from the quarter ending June 30, 2023.

“It is expected that banks will be able to plan their investments in SLR securities in an optimal manner with a clear glide path for restoration of HTM limits,” the RBI said.

Besides, the central bank announced measures to ensure liquidity flow to micro, small and medium companies and micro-finance institutions.

The RBI said banks would be allowed to deduct credit disbursed to “new MSME borrowers” from their net demand and time liabilities (NDTL) for the calculation of CRR.

“For the purpose of this exemption, new MSME borrowers’ would be those who have not availed any credit facilities from the banking system as on January 1, 2021,” the RBI said.

This exemption will be available for exposures up to Rs 25 lakh per borrower for credit extended up to the fortnight ending October 1, 2021.

Retailers get direct access to G-Secs

The central bank’s decision to allow retail participants have direct inline access to the government security market is significant. Till now, retailers had limited access to G-Secs through exchange platforms. Retail investors will now have online access to the government securities market—both primary and secondary—through the Reserve Bank, Shaktikanta Das said.

“This will broaden the investor base and provide retail investors with enhanced access to participate in the government securities market. This is a major structural reform placing India among select few countries which have similar facilities,” he said.

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