MONETARY

POLICY
OPERATIONS
Submitted by:
Ritika Tayal 0520005
Vanshika Yadav 0520053
Khushpreet Kaur 0520082
 INTRODUCTION

• In 2021-22, Monetary Policy was directed by the objective of long term growth and offset the impact of
Covid-19 on the economy while ensuring that inflation remains within the target.

• The conduct of Monetary policy was challenging because of the inflationary pressures and fall in Real GDP
which was primarly due to pandemic
• Understanding the common and
idiosyncratic components of
inflation

• Upgrading GDP nowcasting

• implementing the model (QPM)

• Refining liquidity forecasting and

exploring additional tools for
liquidity management AGENDA FOR
2021-2022 • Examining the behaviour of credit
cycles in India .

• Strengthening nowcasts of food

inflation

• Improving data management by

migration of returns to an XBRL1
reporting format
 MAJOR DEVELOPMENTS
(MONETARY POLICY)
Headline inflation was
5.0% in Q4; 5.2% in Q1 and Q2;
4.4% in Q3 and 5.1% in Q4.
Acc. to MPC: demand-side
pull remained moderate
supply side
Headline infl ation pressures could persist
had fi rmed up
from 4.1% (Jan ) to 5.0 % Repo rate was kept constant at 4
% intensified
(feb,2021)
The real GDP growth
was
retained at 10.5 %
Second wave started
showing : june 2021
Inflation moderated from
5.5%( March) to 4.3% (April)
But also : commodity prices
started rising
Risk of inflation increased
Steps were taken to control
input cost pressure
Third meeting of MPC
( Aug. 2021 )
Domestic eco. showed
signs of revival
Real GDP was retained at
9.5%
But inflationary pressures
had
CPI inflation was revised
upwards
to 5.7 %
 FOURTH BI-MONTHLY AND DEC (2021) MPC
MEETINGS

Domestic eco. : improving , riviving Emergence of the Omicron variant.

Vaccination : increased pace
Inflation rate : declined Inflation : increased
Risks : increased
commodity price : increased
Taxes on petrol and diesel : reduced
Input cost : increased
Vegetable prices : increased
inflation revised : at 5.3% (2021-22) Inflation : rose in Q4 but .
Repo rate : at 4 per % then slowed
Global financial conditions : tightened
 SIXTH BI-MONTHLY
policy of February 2022

Food prices were expected

to benefi t from fresh CPI inflation was retained at
winter crop arrivals 5.3 %

Union Budget on
Increase in domestic MPC unanimously
boosting public
production and a good infrastructure through decided to keep the
rabi harvest. enhanced policy repo rate
capital expenditure. unchanged at 4 %
 THE OPERATING FRAMEWORK: LIQUIDITY MANAGEMENT

2 4
the Reserve Bank announced
and US$19.0 trillion or
additional liquidity measures
18.4 per cent of
amounting to 3.61 lakh crore
during 2021-2
global GDP as
monetary support

1
Aims at aligning the
operating target – the 3
(WACR) – with the policy Across the world,
repo rate through US$16.9 trillion or
proactive liquidity 16.4 per cent of global
management GDP was pledged as fi
scal
support and
India’s Unconventional Lending
OPERATIONS DURING COVID-19
Central banks reopened refi
nancing schemes to
provide pure liquidity support.
Usage of large-scale
targeted lending operations
seems to have worked well
with maximum lending operations
benefi tting the targeted
borrowers – especially the MSME
special liquidity support provided by the
Reserve Bank
to All India Financial Institutions
(AIFIs) including:
•co-operative banks,
•regional rural banks
(RRBs),
•housing fi nance
companies (HFCs),
•microfi nance
institutions (MFIs)
•small fi nance banks
(SFBs).
GOVERNMENT SECURITIES ACQUISITION
PROGRAMME (G-SAP):S DURING COVID-19

Significance: The government will

About:The G-Sec Acquisition Programme
mainly benefit from the G-SAP.
(G-SAP) is basically an unconditional and
a structured Open Market Operation By purchasing G-secs, the RBI
(OMO), of a much larger scale and size infuses money supply into the
economy which inturn keeps the
yield down and lower the
Objective: To achieve a stable and
borrowing cost of the Government.
orderly evolution of the yield curve
along with management of liquidity
in the economy
TIMELINE
Q1
the Reserve Bank conducted three

auctions under G-SAP 1.0 and purchased G-secs

[including state development loans (SDLs)] of Rs1.0

Q2,
lakh crore, in line with the announced amount

six auctions were conducted under G-SAP

2.0 aggregating to `1.2 lakh crore. The G-SAP

2.0 auctions conducted on September 23 and

September 30, 2021 for `15,000 crore each were

accompanied by simultaneous sales of G-secs of

 Further liquidity support

Reserve Bank
an on-tap announced additional
liquidity
liquidity window of
`50,000 crore was support of `66,000 crore
opened

the Reserve
liquidity
Bank announced a special
window of `15,000
three-year long-term
crore was opened in
repo operation (SLTRO) of June 2021
`10,000 crore
 DRIVERS AND MANAGEMENT
OF LIQUIDITY
Q2
surplus liquidity got further

enhanced by the usual return of

Q1
CiC, renewed

vigour of capital infl ows and

liquidity injections
Q3&4
increased
In Q1:2021-22, purchases under the through G-SAP 2.0
government spending partly
G-SAP and net forex purchases in the wake of
compensated for
continued capital infl ows augmented banking
liquidity drainage emanating from
system liquidity, while increase in currency in festival-related
circulation (CiC), build-up of Government of
India(GoI) cash balances and the restoration of the expansion in CiC, net forex sales
and OMO
Rebalancing of Liquidity
• The CRR was restored to its pandemic level of 4.0 per cent of net demand and
timeliabilities
• facilities such as MSF relaxation, on-tap TLTROand SLTRO were •terminated as
scheduled

• to re-establish the 14-day VRRR as the main liquidity management tool, theReserve
Bank progressively enhanced the sizeof the VRRR auctions

• the borrowing limit undert he MSF was restored to the pre-pandemic level of 2 per cent
of NDTL from 3 per cent, effectiveJanuary 1, 2022.
s on account of

larger than anticipated collections under the goods

and services (GST) tax resulted in the overnight

rates breaching the repo rate on January 21,

With increased amount absorbed under the VRRR auctions at higher
cut-offs, the effective reverse repo rate moved higher, from an average
2022 Toof assuage
3.38 permarket
cent in concerns,
Q2 to 3.83the
perReserve
cent in Q4

Bank conducted three variable rate repo (VRR)

he overnight segment rates – the weighted average call rate(WACR),the tri-party
repo rate and the market repo rate – which traded below the reverse repo rate
during H1:202122, gradually moved upwards in H2.
Revised

1
liquidity management framework
variable rate repo (VRR) operations of varying tenors will be conducted as and
when warranted by the evolving liquidity and fi nancial conditions within the CRR
maintenance cycle
VRRs and VRRRs of 14-day tenor will operateas the main liquidity
2 management tool based on liquidity conditions and will be conducted too
coincide with the CRR maintenance cycle
These main operations will be supported by fi ne-
3
tuning operations to tide over any unanticipated
effective March1, 2022, the window for fi xed rate reverse repo and the MSF
4 liquidity
operationschanges
would be available only during 17.30-23.59 hours on all days as against
09.00-23.59 hours instituted earlier
 MONETARY POLICY
TRANSMISSION

Changes in
Inflation
Changes in policy Deposit
and
REPO RATE and Lending Rates
Growth
• In order to correctly transmit interest rate directions, RBI mandated banks to link their
interest rates to external benchmarks like repo rate. This came into effect from October 1,
2019

• The pace of transmission to deposit rates and other lending rates has sped up as a result of
the external benchmark-based loan pricing
 If we look at Bank group
wise analysis shows that
during the easing cycle (Feb
2019 to March 2022), public
sector banks had higher pass-
through to lending rates than
private sector banks. The
transmission to lending and
deposit rates was higher in
case of foreign banks
 There was a significant
improvement in transmission
since October 2019 in sectors
where new floating rate loans
have been mandatorily linked
to the external benchmark.
 Evaluate drivers of inflation
expectations and their role
in inflation dynamics
Prepare an economy-wide
credit conditions index and
analyze its relationship with
key macroeconomic
variables. AGENDA FOR
2022-23

Study the investment

behavior of corporates/firms
to understand constraints
on investment
 CONCLUSION
In future, the conduct of monetary policy will continue to be directed by the objective of achieving the
medium-term target for consumer price index (CPI) inflation of 4 per cent within a range of +/- 2 per
cent, along with focusing on growth. The RBI will continue to manage liquidity in a way that supports
the recovery and maintains macroeconomic and financial stability, while also ensuring adequate
liquidity to satisfy the demands of the economy's productive sectors.
THANK
YOU