RBI's February MPC Announcements: 5 Things You Need To Know

The Reserve Bank of India announced that it would permit retail investors to buy government securities (G-Sec) by opening a gilt account directly with it.

This announcement came as part of its bi-monthly monetary policy announcements - the first since the Union Budget on February 1 - where it has kept key rates unchanged and has indicated that its monetary policy will be 'accommodative', even as the economy limping back to normalcy post the fallout of the ongoing COVID-19 pandemic.

"This is a major structural reform placing India among select few countries which have similar facilities", said the RBI Governor, Shaktikanta Das in his address.

Along with this, the RBI has also included more provisions towards consumer protection and dispute resolution.

Here are top five things to come out from the address.

1. Increased retail participation in government securities

Retail traders will now have direct access to the government securities market by directly opening gilt accounts with the RBI. This market consists of long-term and short term debt. Investors would now be able to participate in this market through the RBI directly, through what the RBI dubs 'Retail Direct', in both the primary and secondary segments.

Initially, to make this market friendlier towards retail participants, the RBI had introduced features like non-competitive bidding in primary auction, allowing buyers to go through stock exchanges for the primary market, and keeping a retail quota in the secondary market.

The details of this plan will be shared separately.

2. A unified ombudsman and consumer grievances

From June 2021, consumers utilising banking services would find it easier to register their complaints and disputes with the RBI. While it already has a ombudsman scheme towards this end, it has three branches, one each for banks, non-banking financial companies and non-bank prepaid payment issuers.

These three schemes will now be integrated to help the consumer, and they will have one centralised reference point.

Plus, the RBI has directed major digital payment system operators to facilitate the process of setting up 24x7 helplines as digital payments sees record transactions during the pandemic.

3. Economic growth

The RBI estimates that the Indian economy will grow 10.5% in financial year 2021-2022. In the first half of the year, the range of growth would be 8.6% to 26.2%, while it would be 6% in the third quarter.

These estimates almost toe the government's official 11% estimate given in the Budget and by the Economic Survey. It is a percentage point less than what the International Monetary Fund estimates for FY22 - which is at 11.5%.

Also Read: India GDP To Grow 11.5% In FY22, 6.8% In FY23, Says IMF

These high rates of growth, however, will be based on a contracted economy this year. The government and the RBI estimates that the economy will shrink to the tune of 7.7% this year.

4. Inflation

Last year, inflation rocketed higher propelled by food inflation, more specifically, due to the increase in prices of key vegetables. Consequently, it breached the RBI's inflation targeting range of 4% with a bracket of 2 percentage points higher or lower (that's 2% to 6%).

However, inflation came back within this band in December 2020, after prices of key vegetables cooled. Petroleum prices remain high, due to prices being high internationally and by central and state indirect tax components.

However, inflation may not bite you as much, as the RBI estimates an inflation rate of 5.2% in the ongoing quarter (Q4, FY21), 5% in the first half and 4.3% in third quarter of the next financial year.

5. Policy rates remains unchanged

1. The policy repo rate, also called the repurchase rate, stays unchanged at 4%.It is the rate at which the RBI lends to banks on a short-term basis.
2. The reverse repo rate, or the rate at which banks keep their funds with the RBI on a short-term basis, remains at 3.35%
3. The Marginal Standing Facility and the bank rate stay unchanged at 4.25%

Read the Governor's address here.

Also Read: Post Initial Recovery, India's GDP Growth To Slow To Around 6.5%: Fitch