The RBI maintained a status quo on policy rates and reiterated an accommodative policy stance in its policy meeting today. However, the RBI changed its forward guidance from a time-based to state-based guidance, apprising the uncertainty related to the ongoing second COVID wave. The RBI stuck to its dovish leaning, prioritizing growth revival as it committed to keeping system liquidity in “surplus”, despite an upward revision to its inflation forecasts. Towards this accord, several measures were announced, including the extension of the on-tap TLTRO scheme, liquidity support to the All-India Finance Institutions (AIFI), and extension of Priority Sector Lending classification for lending by banks to NBFCs for ‘on-lending”. To enable an orderly evolution of the yield curve – the RBI announced an upfront bond-buying G-sec acquisition programme” or G-SAP 1.0 of Rs 1 lakh crore in Q1 FY22. This, coupled with RBI’s decision to conduct a variable rate reverse repo of longer-tenure, should narrow the term-premium and flatten the yield curve.
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