Reserve Bank of India's (RBI) Monetary Policy Committee on Friday voted to keep the benchmark repo and reverse repo rates unchanged for the 11th consecutive time. "MPC voted unanimously to leave the repo rate unchanged at 4 per cent. MPC also voted unanimously to keep the stance accommodative," RBI Governor Shaktikanta Das said in his Monetary Policy Statement.
The repo rate is the interest rate at which the RBI lends short-term funds to banks. The reverse repo rate, the interest rate at which the RBI borrows from banks, remains unchanged at 3.35 per cent. Notably, the Marginal Standing Facility (MSF) rate and the Bank Rate have remained unchanged at 4.25 per cent, Das informed. "We are confronted with new but humongous challenges. Shortage in key commodities, fractures in international financial architecture and fear of de-globalisation. Extreme volatility characterises commodity and financial markets," the RBI Governor said while mentioning that the global economy is witnessing "tectonic shifts" with the commencement of the war in Europe, followed by sanctions and escalating geopolitical tensions. "While the pandemic quickly morphed from a health crisis to one of life and livelihood, conflict in Europe has the potential to derail the global economy. Caught in the cross-currents of multiple headwinds, our approach needs to be cautious but proactive in mitigating the adverse impact on India's growth, inflation and financial conditions," he said.
Keeping the approach " cautious, but proactive", Das said that the RBI is emphasizing on three different aspects which will place India in a position that would enable it to deal with the merging crisis and challenges. The first, as the RBI Governor listed, was a significant improvement in the external sector. "Second, Foreign Exchange Reserves which are at very comfortable levels. Third, substantial strengthening of the financial sector," Das said. This is the 11th consecutive policy review when the RBI has decided to maintain a status quo on key policy rates. The central bank has not changed repo and reverse repo rates since May 2020.
Das said the Monetary Policy Committee has also decided to maintain an accommodative policy stance. While maintaining an accommodative stance, the Reserve Bank of India (RBI) on Friday cut the real Gross Domestic Product (GDP) growth projection for the current Financial Year 2022-23 to 7.2 per cent, against the earlier projection of 7.8 per cent. The inflation forecast has also been hiked from 4.5 per cent to 5.7 per cent for the FY 2022-23. RBI Governor Shaktikanta Das, in his Monetary Policy Statement, said, "Real GDP growth for the year 2022-23 is now projected at 7.2 per cent; with Quarter 1 of FY 2022-23 at 16.2 per cent, Quarter 2 at 6.2 per cent, Quarter 3 at 4.1 per cent and Quarter 4 at 4 per cent."
The inflation, projected at 5.7 per cent in 2022-23, is seen averaging 6.3 per cent in Q1, 5 per cent in Q2, 5.4 per cent in Q3 and 5.1 per cent in Q4. "Given the excessive volatility in global crude oil prices since late February, and the extreme uncertainty over the evolving geopolitical tensions, any projection of growth and inflation is fraught with risk and is largely contingent upon future oil and commodity price developments," the RBI Governor said while informing the change in the projection. The projections were revised assuming that crude oil would be in the Indian basket at USD 100 per barrel during the year 2020-23. Meanwhile, as per the Second Advance Estimates released by the National Statistics Office on February 28, the Real GDP rose by 8.9 per cent in 2021-22.
"Private consumption and fixed investment, however, remain subdued with these two components being only 1.2 per cent and 2 per cent respectively, above their pre-pandemic levels," Das said. Other than keeping the interest rate unchanged at 4 per cent, the Reserve Bank has decided to restore the width of liquidity adjustment facilities, i.e. LAF corridor to 50 basis points - the position that prevailed before the pandemic.
This has been done to "ensure liquidity". Das also informed that the Foreign exchange reserves of India are at a very comfortable level.