DNA Explainer: What is RBI's Monetary Policy and how it affects your budget

The Reserve Bank of India (RBI) Governor Shaktikanta Das today announced the August bi-monthly RBI Monetary Policy 2021 for the ongoing Financial Year 2021-22. The RBI has kept the repo rate unchanged at 4% for the seventh straight meeting. Currently, the repo rate is 4% and the reverse repo rate is 3.35%.

The Monetary Policy Committee (MPC) has retained its GDP growth projection of 9.5% for FY22. The Consumer Price Index or CPI inflation forecast for 2021-22 has been revised to 5.7% from 5.1%. The announcement comes after the three-day review meeting of the six-member Monetary Policy Committee (MPC) which began on Wednesday.

At present, the country is in a phase of economic recovery after the deadly second wave of the COVID-19 pandemic created havoc on the economy. The central bank is of the belief that the withdrawal of monetary policy support could disturb this economic recovery. Economists are expecting, therefore that the Reserve Bank of India will begin policy normalisation only by the fourth quarter of the current fiscal year.

Key takeaways

RBI has announced the monetary policy in which it has kept the repo rate unchanged at 4%.

RBI Governor informed that policy stance continues to be 'accommodative' but it is not unanimous. It passed by 5:1 vote.

CPI inflation is projected at 5.7% during 2021-22, this consists of 5.9% in Q2, 5.3% in Q3, and 5.8% in Q4 of 2021-22 with risks broadly balanced.

CPI inflation for the first quarter of 2022-23 is projected at 5.1% as per RBI Governor Shaktikanta Das.

RBI Governor Shaktikanta Das says that high-frequency indicators for the economy are progressing.

Any action to curb inflation now could kill the nascent and hesitant recovery, said Shaktikanta Das.

The Reserve Bank of India (RBI) keeps the GDP growth forecast for FY22 unchanged at 9.5%.

Under the G-sec Acquisition Programme (GSAP) RBI will conduct two more auctions of Rs 25,000 crore each on August 12 and August 26.

Outlook for aggregate demand is improving but underlying conditions are still weak.

More needs to be done to restore the supply-demand balance in a number of sectors.

What it means for the common man

Every two months of a fiscal year, the Reserve Bank of India (RBI) presents India's monetary policy which reflects the country's financial ability.

RBI's decision on policy repo rate affects the common man, as an unchanged or increased or decreased rate play a role in your goods and services.

The Reserve Bank of India's (RBI) repo rate stance adds value to a citizen's buying habit. 

RBI's policy positioning depends upon the Consumer Price Index (CPI) or retail inflation of the country.

RBI decides the repo rate, in line with the performance of CPI which has a major impact on your purchasing and selling power. 

A higher inflation rate is undesirable as they impact severely the economy and your end products.

It not only affects your household budget but also in a long run affects the savings and fixed income instruments of a citizen. 

The Reserve Bank of India (RBI) hikes repo rate to control rising inflation in the country.

RBI's repo rate cut lowers bank interest rates making it even more flexible for companies to borrow at a cheaper rate from banks. 

Even your home loan, personal loan, and vehicle loan interest rate may also get eased with the cut, hence your EMIs will be reduced.

If there is a repo rate cut, then the deposit interest rates and small savings may lower marginally too, though that is not always the case.