Given the evolving growth-inflation dynamic (elevated inflation and subdued economic activity), Reserve Bank of India Governor Shaktikanta Das said the Monetary Policy Committee (MPC) felt it was appropriate to maintain status quo on the policy repo rate.

But the committee resolved to continue with the accommodative stance as long as necessary to revive growth while ensuring that inflation remains within the target. The MPC also recognised that there is monetary policy space for future action. In his preliminary remarks at the post monetary policy review press meet, Das said: “There is an element of consistency between the last meeting in December and this meeting in February, in terms of the fact that we have kept the rate and the stance unchanged. So, there is continuity.

“But it should not be read as a pointer for future action of the MPC. The committee will be guided by the evolving situation and take whatever steps that are required at the appropriate time in the most opportune manner to optimise the impact of various monetary policy actions.

In the media interaction, the Governor emphasised that the policy measures were aimed at improving monetary transmission, incentivising bank credit to specific sectors, among others.

Besides Das, RBI brass, including Deputy Governors NS Vishwanathan, MK Jain, BP Kanungo and MD Patra, fielded questions. Excerpts:

What is the aim behind introducing long-term repo operations (LTRO)?

Das: Basically, it is an effort to ensure better monetary policy transmission because we are giving it (injecting funds into the banking system) at the policy rate.

So, we want to inject ₹1-lakh crore into the banking system. That will enable banks to reduce their lending rates.

Will LTRO replace open market operations (OMOs)?

Patra: LTRO are not intended to replace OMOs, which are outright. The idea is to somehow help banks to reduce the cost of funds for on-lending.

It also gives assurance of durable liquidity…especially when deposit rates are rigid downwards

Are you managing Government Security (G-Sec) yields via ‘Operation Twist’?

Operation Twist is an instrument used to ensure better monetary policy transmission. The corporate bonds are benchmarked to the G-sec segment.

So, by Operation Twist if we are able to soften the yields on G-Secs at the longer end, say 10 years, then that acts as a benchmark for corporate bond rates. So, the effort was mainly to ensure better monetary policy transmission to the corporate bond market, not so much to manage the yield on G-Secs.

What will be the premium that banks have to pay after the deposit insurance coverage has been hiked five times to ₹5 lakh per individual depositor?

Kanungo: The premium is something that we are considering.

It will be increased from 10 paise to 12 paise per ₹100 deposit for the time being. So, the impact on the banks balance sheet is not likely to be much.

With the Rupee Interest Rate Derivative announcement, are you targetting people trading in the Non-Deliverable Forward market? What is the currency strategy at this point of time?

Das: The currency strategy is an internal operating procedure. I don’t want to speak on that.

ED Rabi Shankar: The idea is not to interfere in the NDF market. Currently that market is opaque to us….So, we want to improve the transparency of that market.

That is the basic thinking behind the move. We will work out the details.

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