Monetary Policy Highlights

The bi-monthly RBI Monetary Policy was announced on June 4 with the central bank deciding to hold key interest rates.

  1. The repo rate stays at 4% (the rate at which commercial banks borrow money by selling their securities to the RBI), maintaining liquidity and checking on inflation. Inflation is projected at 5.1% for the current financial year
  2. The reverse repo rate (the RBI’s borrowing) is also unchanged at 3.35% to maintain cash flow in the banking system.
  3. To aid further liquidity, the RBI announced the 3rd tranche of bond buying worth Rs 40,000 crore under G-SAP 1.0 (Government security acquisition Programme).
  4. G-SAP 2.0 was also announced under which the RBI will buy bonds worth Rs 1.2 trillion and will also buy bonds issued by state governments.
  5. Banks are allowed to borrow Rs 15,000 crore for lending to COVID-19-hit sectors such as hotels and tourism industry.
  6. Additional Rs 16,000 crore funding has been earmarked for SIDBI for lending to MSME (Micro, small and medium enterprises).
  7. The RBI also revised its growth projection to 9.5% (from the earlier 10.5%) for the current financial year.

What does it mean to savings and investments?

  1. Nothing has changed with bank savings rates for almost a year
  2. Liquidity remains a concern and policy is attempting to control it
  3. Interest rates on savings remain low and could go down further
  4. Investments in debt funds will continue to witness flat yields

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