RBI Monetary Policy 2021: Lends helping hand to boost liquidity for MSMEs

The Reserve Bank of India, through its Monetary Policy Committee keeps the repo rate unchanged at 4%, reverse repo rate rate at 3.35%, while the Apex bank has also maintained MSF and Bank rate at 4.25%.

Reserve Bank of India Governor, Shakthikanta Das. Photo Credit: PIB.

Also, the Central Bank has revised the economic growth forecast for current fiscal to 9.5% from the previous forecast of 10.5%. In fact, the Governor of RBI, Shaktikanta Das is keeping the key policy rates unchanged for the sixth consecutive time.

Reactions

There are mixed reactions coming from various business segments with reference to the RBI’s Monetary Policy today.

Anshuman Panwar, Co-Founder of Creditas Solution

Speaking about the RBI’s announcement today, Anshuman Panwar, Co-Founder of Creditas Solutions said: “RBI has maintained its accommodative stance as expected by the market. In comparison to restructuring 1.0, more borrowers are applying for Restructuring 2.0.

RBI’s move to expand the coverage of borrowers under Resolution Framework 2.0 by enhancing the overall exposure from Rs.25 crores to Rs. 50 crores is expected to help a larger number of MSMEs, non-MSMEs and individuals who have taken business loans and this will reduce the delinquency rates.

This is a huge relief to small business owners reeling under the stress caused due to the second wave of Covid. Further RBI has extended a fresh lease of life to the sector worst affected by the pandemic with a separate liquidity window of Rs.15,000 crores especially for the contact intensive sector of Travel and Hospitality and allied services.”

Dr. Alok Sheel, RBI Chair Professor in Macroeconomics, Indian Council for Research in International Economic Relations (ICRIER

Dr. Alok Sheel, RBI Chair Professor in Macroeconomics, Indian Council for Research in International Economic Relations (ICRIER) said: “As expected, the MPC has decided to keep policy rates on hold, while stating its intention to continue injecting more liquidity in financial markets, including buying government debt. Monetary policy was already very accommodative, with the real repo rate in negative territory. Despite inflationary pressures it seemed unlikely that the central bank would tighten policy as this could derail the recovery under way. The RBI does not expect CPI inflation in 2021-22 to exceed its upper target of 6%, so it understandably continues to focus on its secondary monetary policy target of stabilising the business cycle, which was already in serious trouble even before Covid-19. It may be observed that RBI’s accommodative stance long preceded the Covid downturn.

In view of the second wave RBI has cut its growth forecast for 2021-22 from 10.5% to 9.5%.

RBI also feels that the fear of taper tantrums and associated capital outflows has receded for now, although it continues to be watchful and conduct two way interventions in the FE market to maintain stability.

In his last statement the Governor had indicated that the RBI was working in close cooperation with government, leading to some speculation regarding an associated fiscal package to boost growth. While there was no such reference in today’s statement, this does not diminish the fact that with the continuing overhang of bad debt clogging the transmission channels of monetary policy, fiscal policy remains by far the most potent game in town for getting the economy back on track.”