RBI monetary policy: Rates kept unchanged for continued support to economy

RBI monetary policy 2022: 'India is charting a different course of recovery than the rest of the world, to be the fastest-growing economy,' says RBI governor

The Reserve Bank of India’s monetary policy committee (MPC) on Thursday kept key interest rates unchanged for a tenth straight meeting, retaining an accommodative stance amid the threat surrounding Omicron coronavirus variant.

Repo and reverse repo rates remain unchanged at 4 per cent and 3.35 per cent, respectively, said RBI governor Shaktikanta Das in a statement after a three-day meeting of the committee in Mumbai.

“India is charting a different course of recovery than the rest of the world, to be the fastest-growing economy,” said Das.

The six-member rate panel, which has been on pause since August 2020, retained its accommodative policy stance with a 5-1 vote, Das said, signaling the economy needed continued support despite accelerating inflation. While retaining the accommodative stance, he reiterated the “as long as necessary” language used since October 2019.

“Monetary policy actions will be calibrated and well telegraphed,” Das said, underlining that there won’t be any surprises.

The central bank has slashed the repo rate by a total of 115 basis points (bps) since March 2020 to soften the blow from the coronavirus pandemic and tough containment measures. The rate is now 250 bps below its level at the beginning of 2019, when the easing cycle began.

The RBI lowered the inflation outlook to 4.5 per cent for next fiscal year, down from 5.3 per cent in the current year. The central bank sees gross domestic product growth slowing to 7.8 per cent next fiscal, down from a 9.2 per cent expansion estimated by the government this year. 

“Taking into consideration outlook for inflation and growth, in particular the comfort provided by improving inflation outlook, the uncertainties related to omicron and global spillovers, the MPC was of the view that continued policy support is warranted for a durable and broad based recovery,” Das said, according to Bloomberg.

Respondents in a February 2-4 Reuters poll were closely split on the timing of the next rise, with slightly more than half, 17 of 32, expecting a 25 basis point rise to 4.25% in April.

Among the remaining 15, 13 were nearly split between June and August. Only one economist said it would come as early this month, and one other said it would happen in October of this year.

Highlights of the RBI's monetary policy statement:

• Benchmark lending rate kept unchanged for a 10th straight time at 4 per cent, reverse repo rate at 3.35 per cent
• GDP growth projected at 7.8 per cent for FY23, against 9.2 per cent for FY22
• India charting a different course of recovery than the rest of the world; to be the fastest-growing economy
• RBI will continue with its accommodative stance to revive and sustain growth; pandemic is holding global economy hostage
• Retail inflation projected at 5.3 per cent for the current financial year, 4.5 per cent for FY23
• Inflation to peak in the current quarter within the tolerance band, moderating in the second half of FY23
• Hardening global crude oil prices present an upside risk to inflation
• The Indian rupee showed resilience in the face of global spillovers
• Current account deficit to be below 2 per cent of GDP in FY22
• Overall system liquidity remains in large surplus
• RBI would continue to insulate the domestic economy from global spillovers
• RBI has extended the on-tap liquidity facility of Rs 50,000 crore for healthcare and contact-intensive sector by 3 months 
• E-Rupi digital voucher cap raised from Rs 10,000 to Rs 1 lakh; multiple-use permitted
• The next meeting of the Monetary Policy Committee is scheduled for April 6-8.

(With inputs from agencies)