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Highlights of the Sixth Bi-Monthly Monetary Policy of FY21-22

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Highlights of the sixth Bi-Monthly Monetary Policy of FY21-22

The Reserve Bank of India’s (RBI) 6-members Monetary Policy Committee (MPC) had met on 8th, 9th and 10th February 2022 and released its sixth bi-monthly monetary policy statement for FY22 (April 2021 – March 2022).

Policy Rates:

I.RBI kept the rates under the liquidity adjustment facility (LAF) unchanged (maintains status quo) for the 10th consecutive time i.e. it decided to continue with the accommodative stance to mitigate the impact of COVID-19 on the economy and to revive and sustain growth on a durable basis.

II.The unchanged Policy rates are as follows:

Policy Rates
Policy Repo Rate4.00%
Reverse Repo Rate3.35%
Marginal Standing Facility (MSF) Rate4.25%
Bank Rate4.25%
Reserve Ratios
Cash Reserve Ratio (CRR)4.00%
Statutory Liquidity Ratio (SLR)18.00%

III.About Monetary Policy Stances:

Monetary Policy Stances of RBI are classified into Dovish, Hawkish, Accommodative, and Neutral.

i.Hawkish stance: This monetary policy stance supports high interest rates to keep inflation in check. Because of the high interest rates, borrowing i.e. taking loans from banks and other sources will be reduced.

ii.Dovish: It is a stance opposite to the Hawkish stance and this monetary policy stance involves low-interest rates. Low-Interest Rates would induce the consumers to take loans from Banks.

iii.Accommodative: This stance will be used to allow the money supply to rise in line with national income and the demand for money.

  • RBI will use the accommodative stance to expand the overall money supply to boost the economy when the economic growth is slowing down.

iv.Neutral: In this stance, the Key Policy Rates are neither increased or decreased.

a.MPC’s Assessments on growth and inflation:     


i.India’s real gross domestic product (GDP) growth projection for FY23 is projected at 7.8 percent with 17.2 percent at Q1; 7.0 percent at Q2; 4.3 percent at Q3; and 4.5 percent at Q4.

ii.NSO Data: As per the data released by the National Statistical Office (NSO) on January 7, 2022 India’s real GDP growth for FY22 was placed at 9.2 percent. The NSO also revised real GDP growth for FY21 to (-) 6.6 percent from the provisional estimates of (-) 7.3 percent.

iii.India’s foreign exchange reserves increased by US$ 55 billion in FY22 (up to February 4, 2022) to US$ 632 billion.


i.Consumer Price Index (CPI)/Retail inflation was projected at 5.3 percent in FY22, with 5.7 percent in Q4.

ii.CPI inflation for FY23 is projected at 4.5 percent with 4.9 percent at Q1 ,5.0 percent at Q2, 4.0 percent at Q3, and 4.2 percent at Q4.

iii.The government retained the inflation medium-term target at 4 percent with the lower and upper tolerance levels of 2 percent and 6 percent, i.e. within a band of +/- 2 percent.

Member of MPC:

The MPC meeting was headed by RBI Governor Shaktikanta Das the other 5 members of the committee include,

Shashanka Bhide, Ashima Goyal, Prof. Jayanth R. Varma, Mridul K. Saggar, and Michael Debabrata Patra

Global Economy:

In the January 2022 World Economic Outlook of the International Monetary Fund (IMF) revised the global output and trade growth projections for 2022 to 4.4 percent and 6.0 percent, respectively (down from 4.9 percent and 6.7 percent previously).

b.MPC’s Measures on Payment and Settlement Systems:

-Enhancement of the Cap under e-RUPI from Rs 10,000 to Rs 1 lakh


i.e-RUPI(Prepaid digital Vouchers using UPI), the ‘person and purpose-specific’ one-time cashless and contactless voucher-based prepaid electronic digital payment solution was developed by the National Payments Corporation of India (NPCI) (run on its UPI (Unified Payments Interface) platform) and launched in August 2021 to strengthen the Direct Benefit Transfer (DBT) and the financial inclusion of unbanked citizens. Click here to know more

ii.The voucher which could be used by individuals, corporates or governments has the limit of Rs 10,000 per voucher and each voucher can be used / redeemed only once.

Note – At present, the voucher is used largely for Covid-19 vaccination purposes.

Current Enhancement:

Currently, RBI has proposed to increase the limit on amount for e-RUPI vouchers issued by Governments to Rs 1,00,000 per voucher and allow use of the voucher multiple times (until the amount of the voucher is completely redeemed).

-Enhancing NACH Mandate Limit for TReDS Settlements


i.Trade Receivables Discounting System (TReDS), which facilitates discounting / financing of receivables of MSMEs, was launched by the RBI to support the Micro, Small and Medium Enterprises (MSMEs) sector.

ii.TReDS settlements are carried out through mandates in the National Automated Clearing House (NACH) system. Currently, the amount of the NACH mandate is capped at Rs 1 crore.

iii.To encourage innovation and competition through increased participation, ‘on-tap’ authorisation of TReDS operators was introduced by RBI in October 2019.

Current Extension:

RBI has proposed to increase the National Automated Clearing House (NACH) mandate limit for settlements related to the invoice discounting mechanism for MSMEs through TReDS to Rs 3 crore from Rs 1 crore to enhance the ease of financing and the growing liquidity requirements of MSMEs.

Note – MSME sector contributes 30 percent to India’s GDP and employs over 110 million people.

c.Liquidity Measures undertaken by RBI:

-Extension of Term Liquidity Facility of Rs 50,000 crore till June 30, 2022

RBI has proposed to extend the term-liquidity facility of Rs 50,000 crore by three months till June 30, 2022. The facility was offered in May 2021 to emergency health services.


i.In May 2021, RBI announced an on-tap liquidity window of Rs 50,000 crore with 3 years of maturity and at repo rate till March 31, 2022 (End of FY22) under the priority sector lending classification.

ii.Banks could lend under this scheme for vaccine manufacturers; importers of vaccines and COVID-19 related drugs manufacturers and suppliers of oxygen and ventilators; patients for treatment etc.

iii.To deliver loans to borrowers under this scheme banks need to create a COVID-19 loan book and park their surplus liquidity in the book with the RBI under the reverse repo window at a rate that is 25 bps lower than the repo rate or, 40 bps higher than the reverse repo rate.

Note – Banks have deployed their own funds to the tune of Rs 9,654 crore (up to February 4, 2022) towards COVID-19 related emergency health services.

-Extension of On-tap Liquidity Window for Contact-intensive Sectors

RBI has proposed to extend the liquidity window of Rs 15,000 crore for certain contact-intensive sectors by three months i.e. up to June 30, 2022.


i.In June 2021, RBI opened a separate liquidity window of Rs 15,000 crore with tenors of up to 3 years at the repo rate till March 31, 2022 – for certain contact-intensive sectors.

ii.Banks were eligible to park their surplus liquidity up to the size of the COVID-19 loan book, created under this scheme with the RBI. The amount in this COVID-19 loan book attracted a rate which is 25 bps lower than the repo rate or, 40 bps higher than the reverse repo rate.

Note – Banks have deployed their own funds to the tune of Rs 5,041 crore (up to February 4, 2022) to the entities under contact intensive sector.

d.Other Measures undertaken by RBI:

-Enhancement of Limits under VRR to Rs 2.50 lakh crore

RBI has increased the investment limit under the Voluntary Retention Route (VRR) for foreign portfolio investors (FPIs) from 1.5 lakh crore to Rs 2.50 lakh crore (increased by Rs 1 lakh crore) with effect from April 1, 2022.


i.In March 2019, RBI has introduced the scheme of VRR to encourage FPIs to undertake long-term investments in Indian debt markets (in government and corporate debt securities).

ii.Objective: The VRR was formed with an objective to provide a separate channel, broadly free of macro-prudential controls, to FPIs with long-term investment horizons.

iii.Initially, the aggregate investment limit was Rs 40,000 crores for VRR-Govt and Rs 35,000 crores for VRR-Corp.

iv.In January 2020, the investment limit under VRR increased to Rs 1,50,000 crores (1.5lakh crores).

-CDS: Guidelines for Credit Default Swaps (CDS) were last issued in January 2013 and they were reviewed and draft guidelines were issued on February 16, 2021. Currently, the final Directions are issued.

-Permitting Banks to deal in Foreign Currency Settled – Rupee Derivatives Market

i.RBI has decided to allow banks in India to undertake transactions in the offshore Foreign Currency Settled-Overnight Indexed Swap (FCS-OIS) market with non-residents and other market makers.

ii.Objective: To reduce the segmentation between the onshore and offshore markets, enable more efficient price discovery and further deepen the interest rate derivatives market in India.

iii.Banks could participate through their branches in India, their foreign branches or through their IFSC (International Financial Services Centres) Banking Units.

Existing Provisions:

i.In June 2019, Banks in India have already been permitted to offer Rupee interest rate derivatives such as OIS to non-residents.

ii.Overseas entities were also allowed to undertake OIS transactions for purposes other than hedging with banks in India either directly or on a back-to-back basis through a foreign branch/parent/group entity (foreign counterpart) of the market-maker in India.

-Master Direction:

RBI proposes to issue master directions for comments of stakeholders and members of the public – (i) Reserve Bank of India (IT Outsourcing) Directions, 2022; and (ii) Reserve Bank of India (Information Technology Governance, Risk, Controls and Assurance Practices) Directions, 2022.

Recent Related News:

On January 20, 2022, the Reserve Bank of India (RBI) conducted an Overnight variable rate repo (VRR) auction for Rs 50,000 crore under liquidity adjustment facility (LAF) to infuse liquidity, instead of its usual fixed-rate overnight reverse repo window, as Goods and Services Tax (GST) collection tightened liquidity this week.

About Reserve Bank of India (RBI):

Establishment– April 1, 1935
Headquarters– Mumbai, Maharashtra
Governor– Shaktikanta Das
Deputy Governors– Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar.