RBI Monetary Policy Review: MPC Maintains Status Quo

While maintaining a cautious tone about global economic recovery, RBI Governor Shaktikanta Das expresses optimism over India’s growth, quoting IMFs projections, and calls India the fastest growing major economy. He went on to stress that protecting the vulnerable sections remains a priority, while commending the push towards universal vaccination, and increased use of tech in the economy. Here are the key highlights of the RBI’s Monetary Policy meeting:

Status Quo on Lending Rates

The six-member Monetary Policy Committee (MPC), headed by Governor Shanktikanta Das, decided to keep the policy Repo Rate unchanged at 4.0%. The Reverse Repo Rate was also kept unchanged at 3.35%. Marginal Standing Facility Rate and Bank Rate are at 4.25%.

MPC has voted 5-1 in favour of continuing an ‘accommodative’ monetary policy stance. Governor Das emphasised that this was necessary to ensure durable growth and to mitigate the effect of the pandemic on the Indian economy, while ensuring inflation remains within target.

Real GDP and Growth Projection

With modest growth, Real GDP for 2021-22 stands at 9.2%. For 2022-23, RBI projects India’s Real GDP to grow at 7.8%.

However, trailing private consumption, a persistent rise in international commodity prices, volatile financial markets and supply bottlenecks are the key challenges to the above growth projection, Governor Das noted. Nonetheless, the Union Budget 2022-23 puts the focus on capital expenditure and exports, which is expected to result in an enhancement of productive capacity, strengthening of overall demand and crowding-in of private investment, according to him.

Inflation

CPI inflation for 2022-23 is projected at 4.5%, while inflation projection for 2021-22 was retained at 5.3%. Governor Das stated that the inflation spike in December, to 5.7%, was due to unfavourable base effects. Reduction in food prices, rise in foodgrain production & easing of vegetable prices are expected to stabilise inflationary pressures, according to him.

Indian Rupee remains resilient

Indian rupee stands strong in the forex market, on the back of huge forex reserve buffers and a modest Current Account Deficit (CAD), which is expected provide stability to the import-export sector, Governor Das noted in his statement.

Conclusion

Governor Shaktikanta Das, in his unique style, quotes Lata Mangeshkar’s song “Aaj phir jine ki tamanna hai..” while referring to the last two years of living with the virus, as lessons for being grounded and humble without losing confidence and optimism. He reiterated RBI’s commitment to preserving the trust and confidence in the domestic financial system and concludes his statement by quoting Mahatma Gandhi “Satisfaction lies in the effort, …… Full effort is full victory”…”

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