After three days of discussions of RBI’s monetary policy committee (MPC), the governor of Reserve Bank of India (RBI) announced the Monetary Policy Committee (MPC)’s decisions at 10.00 am today.

The repo rate and the reverse repo rate have been kept unchanged by the central bank with the repo rate being kept at 4 percent. On August 6, RBI, in the previous monetary policy review had kept the repo rate and reverse unchanged at 4% and 3.35% respectively.

The RBI governor stated that a stance described as “accommodative” has been maintained for “as long as required” for growth. A host of other new measures have been announced by the RBI governor.

As per the latest update, exposure of banks to retail and small borrowers has been allowed to be increased to Rs. 7.5 crore. For all new housing loans, the central bank is also rationalizing risk weights till March 31, 2022. RBI has also allowed extending the scheme for co-lending to all non-banking financial companies (NBFCs) and housing finance companies (HFCs).

New measures decided in the MPC meeting by RBI on home loans make them safer. To all home loans under as per loan-to-value, risk weights will be assigned. Keki Mistry of HDFC Ltd said in an interview that the average loan-to-value for HDFC is 60 percent, further adding that on-Tap TLTRO would reduce the cost of borrowing for NBFCs. In a separate measure, the MPC has decided to license the Payment system operators on a perpetual basis.

Earlier, the meeting of the six-member MPC was scheduled to take place from September 29 to October 1. Since the appointment of the independent members was delayed, the meeting got rescheduled. Finally, on October 7, the three-day meeting took place amid speculations that it will maintain the status quo on the benchmark lending rates in view of hardening inflation.

RBI has decided to increase the weekly Open market Operations (OMO) purchases to Rs.20000 crore. The MPC meeting has decided that the RBI would conduct OMO in state development loans as well. It is needed to rationalize the spread over G-secs. It has been decided to complete the residual government borrowing in a non-disruptive fashion. The Ways & Means Advance limit for the central government has been kept at Rs. 1.25 lakh crores.

Concerning the inflation and growth trajectories, this policy should provide greater insights into the MPC’s forward assessment. The RBI may have to resort to more innovative and/or aggressive measures to ensure orderly absorption of government bond supply, without creating many dislocations in the bond markets.

Unmesh Kulkarni, Managing Director, Senior Advisor at Julius Baer India stated that to comfort the Gilt markets, especially in the face of a burgeoning fiscal deficit, the announcement of an OMO calendar is expected.