RBI's Monetary Policy Statement December 2021: Know Committee Members, Policy Rate, Ratio, Decision!

By Rajat Pandey|Updated : January 26th, 2022

RBI's Monetary Policy Statement December 2021: Reserve Bank of India (RBI) has announced its bi-monthly monetary policy review for December 2021 in Mumbai today after three days of deliberations of its monetary policy committee (MPC).     

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting decided to:

  • Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent.
  • The Marginal Standing Facility (MSF) rate and the Bank rate remain unchanged at 4.25 per cent.
  • The reverse repo rate stands unchanged at 3.35 per cent.
  • The MPC also decided to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.
  • These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent while supporting growth.

The Meeting of the Monetary Policy Committee (MPC), constituted under section 45ZB of the Reserve Bank of India Act, 1934, was held from 6th,7th and 8th December 2021.

Monetary Policy Committee Members

  1. Shri Shaktikanta Das,
  2. Dr Shashanka Bhide,
  3. Dr Ashima Goyal
  4. Dr Mridul K. Saggar,
  5. Dr. Michael Debabrata Patra
  6. Prof. Jayanth R. Varma

Note: The MPC voted 5-1 to retain the accommodative stance as long as necessary to sustain growth on a durable basis while ensuring that inflation remains within the target. 

RBI Monetary Policy Key Decisions

  • India’s GDP, in the second quarter of FY22, grew at 8.4% compared with a decline of 7.4% in the corresponding period in the last year.
  • The RBI has retained its GDP growth projection at 9.5%  for FY22, but revised Q3FY22 growth estimate to 6.6% (earlier-6.8%).
  • The emergence of Omicron has given rise to fears of further restrictions on travel and economic activity, which has led to "considerable uncertainty on growth dynamics" for the coming months.
  • The reduction in VAT of fuel will have a direct impact on inflation, but price pressures may persist in the near term.
  • However, the RBI expects headline inflation to peak in Q4FY22, after which it is likely to soften.
  • UPI-based payment products will be launched for feature phone users
  • RBI enhanced the transaction limit to Rs 5 lakh from Rs 2 lakh for UPI payments for RBI's Retail Direct scheme
  • Inflation has eased of late but is still away from MPC's ideal rate of 4 per cent.
  • India’s retail inflation rate, which is measured by the Consumer Price Index (CPI), rose to 4.48 per cent in October.
  • The CPI-based inflation in September 2021 was at 4.35 per cent and 7.61 per cent in October 2020.
  • The RBI sees CPI inflation at 5.3 per cent for FY22--5.1 per cent in Q3 and 5.7 per cent in Q4.
  • Price stability remains the cardinal principle of monetary policy as it fosters growth and stability.
  • RBI is looking to re-establish a 14-day VRRR auction as the main liquidity management operation

RBI Monetary Policy Rates

Policy Repo Rate4.0%
Reverse Repo Rate3.35%
Marginal Standing Facility Rate4.25%
Bank Rate4.25%

RBI Monetary Reserve Ratios

CRR

3%

SLR

18.00%

Note: The next meeting of the MPC is scheduled from 6-8 December 2021 (fifth meeting).

Let us now understand some common terms of the Policy rates - 

1. Repo Rate 

It is the rate at which RBI lends money to commercial banks.

2. Reverse Repo rate

It is the rate at which RBI borrows money from commercial banks.

3. Cash Reserve Ratio (CRR)

The share of net demand and time liabilities (deposits) that banks must maintain a cash balance with the Reserve Bank.

4. Statutory Liquidity Ratio (SLR)

The share of net demand and time liabilities (deposits) that banks must maintain in safe and liquid assets, such as, government securities, cash, and gold.

5. Bank Rate

It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers for the long term.

6. Marginal Standing Facility Rate (MSF)

The rate at which the scheduled banks can borrow funds from the RBI overnight, against the approved government securities is termed as MSF.

 

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