RBI Monetary Policy : Key Highlights | MarketSmith India

Key Policy Rates ● The MPC unanimously decided to keep the repo rate unchanged at 4%. ● It continues to maintain its accommodative stance as long as necessary to revive growth. ● Reverse repo rate remains unchanged at 3.35%. ● Marginal standing facility and bank rate remain unchanged at 4.25% each. rnOn India’s GDP Growth rnThe real GDP growth is projected at 10.5% in 2021–22. The RBI’s survey points toward an improvement in capacity utilization in the manufacturing sector to 63.3% in Q2 FY21 from 47.3% in the preceding quarter. The manufacturing PMI rose to 57.7 in January 2021 from 56.4 in December 2020, and the services PMI rose to 52.8 in January 2021 from 52.3 in December 2020. rnOn Budget 2021 The Union Budget 2021–22 has provided a strong impetus for a revival of sectors such as health and well-being, infrastructure, innovation and research, among others. This will have a cascading multiplier effect going forward, particularly in improving the investment climate and reinvigorating domestic demand, income, and employment. rnOn Bondrn rnThe issuance of corporate bonds reached a record level of Rs 5.8 lakh crore during 9M FY21 as compared with Rs 4.6 lakh crore during 9M FY20. RBI extended the dispensation of enhanced HTM of 22% up to March 31, 2023. This includes securities acquired between April 1, 2021, and March 31, 2022. The HTM limits will be restored in a phased manner starting June 31, 2023. Further, there is an announcement for an extension in MSF for additional 6 months, up to September 30, 2021. This is likely to make it easy for lenders to access funds. rnOn Inflationrn rnRBI ​projected CPI inflation at 5.4% in Q4 FY21. For H1 FY22, 5.2–5% inflation is expected with risks broadly balanced. For Q3 FY21, the inflation rate stood at 4.3%. Further, vegetable prices are expected to remain soft. rnRestoration of CRRrn rnRBI made an announcement regarding the normalization of CRR. It will be restored to 3.5% effective from March 27, and 4% effective from May 22, 2021, in two phases. This should lead to a variety of market operations, boosting market liquidity. rnLaunch of Retail Direct schemern rnRBI’s new initiative called Retail Direct will allow retail investors with online access to the government securities market – both primary and secondary – directly through the Reserve Bank. Retail investors can open Gilt accounts directly with RBI for investments. rnOur view on Markets: rnWe maintain a positive view of the overall market as indices trend into new highs. Further, leadership remains widespread across multiple sectors. Last week, market status was changed to an Uptrend Under Pressure due to a rise in distribution days and after Nifty breached its 21-DMA. On Wednesday, Nifty made a new high and moved above the previous rally high of 14,754. Hence, we changed the market status to a Confirmed Uptrend. However, the distribution day count remains elevated at six. Focus on high-quality ideas emerging from sound bases with a relative strength line at or near a new high. Nifty is more than 3.5% above its 21-DMA. If 21-DMA is breached, we may downgrade the status to an Uptrend Under Pressure. Without trying to predict and decode stories, we will take what the market gives and continue to monitor unfolding conditions. Read more: how to invest in stock market