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HomeMoneyRBI monetary policy: Repo rate remains unchanged at 4%, accommodative stance maintained

RBI monetary policy: Repo rate remains unchanged at 4%, accommodative stance maintained

RBI monetary policy: Repo rate remains static at 4%, accommodative stance maintained

During the first monetary policy review of FY23, the Reserve Bank of India (RBI) maintained its key lending rate on Friday. Furthermore, the growth-oriented accommodative stance was maintained. As a result, the central bank’s Monetary Policy Committee (MPC) kept the repo rate, or short-term lending rate, for commercial banks at 4%.

Based on the assessment of the macroeconomic situation and outlook, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) voted unanimously on Wednesday to maintain the status quo with regard to the policy repo rate, and a majority of 5 to 1 decided to maintain the accommodative policy stance.

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“As a result, the policy repo rate remains unchanged at 4%, and the stance remains accommodative for as long as necessary to revive and sustain growth on a long-term basis and continue to mitigate the effects of COVID-19 on the economy while making sure that inflation remains within the target going forward,” RBI governor, Shaktikanta Das said, in a statement issued following the meeting.

On the MPC’s rationale for keeping the policy rate and stance unchanged, he stated, “The recovery of aggregate demand is dependent on private investment, which is still lagging.” The MPC regarded the amplitude of global headwinds as the main risk to the domestic outlook, which is now somewhat clouded by the Omicron variant of COVID-19.

“Moreover, given the economy’s slack and the ongoing catching-up of activity, particularly private consumption, which remains below pre-pandemic levels, continued policy support is warranted for a long-term and broad-based recovery.” In light of this, the MPC decided to keep the current repo rate at 4% and maintain its accommodative stance,” he added.

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He stated that the economic recovery, which had been hampered by the second wave of the pandemic, was regaining traction but was not yet strong enough to be self-sustaining and durable, and that the emergence of Omicron and renewed surges of COVID-19 infections in a number of countries had increased the downside risks to the outlook.

Taking all of these factors into account, the real GDP growth projection for FY22 remains at 9.5 percent, with 6.6 percent in Q3 and 6.0 percent in Q4. Real GDP growth is expected to be 17.2 percent in Q1:FY23 and 7.8 percent in Q2:FY23.

In a press conference following the monetary policy meeting, Das stated that the RBI will restore the liquidity adjustment facility (LAF) corridor to 50 basis points (bps), as it was pre-Covid. The MSF rate and the bank rate remain at 4.25 percent.

RBI Monetary Policy 2021 announcements: Repo rate unchanged at 4%, accommodative  stance as long as necessary

“The newly instituted standing deposit facility (SDF) will now provide the floor of the corridor, which will be placed 25 basis points below the repo rate, i.e., at 3.75 percent,” the governor said.

Retaining the repo rate at 4% and the reverse repo rate at 3.35 percent, while maintaining an accommodative stance on expected lines. Recognizing the new reality of higher crude prices caused by the war, the RBI reduced the FY23 GDP growth rate projection to 7.2 percent from 7.8 percent previously and raised the FY23 CPI inflation projection to 5.7 percent from 4.5 percent previously. This is based on the assumption that crude will be $100 per barrel.

This implies that if crude falls sharply, as is likely if the war ends soon, growth and inflation will improve. The opposite could be true if the war escalates and crude prices rise significantly above $100.

The most recent RBI policy reflects hesitant hints to turn hawkish while remaining dovish. The aggressive reduction in GDP estimates for FY23 and a sharp increase in inflation projections for FY23 could mean some tightening measures in the future, which would be reinforced by the shift instance to focus on withdrawal of accommodation.

Current geopolitical events, supply chain issues, and commodity price inflation are tying the RBI’s hands and forcing it to gradually turn hawkish, despite its desire to maintain its pro-growth outlook. The 10-year G-sec yield has risen to 7%, reflecting the market’s concern about the large borrowing program in the face of rising interest rates. The current RBI policy was devoid of surprises, with rates remaining unchanged for the 11th consecutive policy.

However, it has clearly outlined the path to policy unwinding. The emphasis will now be on withdrawing the accommodative policy stance in order to keep inflation under control. The RBI’s announcement today clearly indicates the end of easy monetary policy, which is reflected in the 10-year benchmark yield, which has reached a multi-year high. Rbi Keeps Repo Rate Unchanged But Maintains Accommodative Stance | Mint

The unwinding of liquidity will cause some turbulence, and it is likely that the RBI will lower the growth rate projection for FY23 to 7.2 percent, with the inflation target raised to 5.7 percent from 4.5 percent previously. The clear goal of central banks around the world is to control inflation and unwind easy credit.

Mr. Das stated that cost-push pressures continue to weigh on core inflation, though their impact may be muted due to the economy’s slack; however, headline inflation is expected to peak in Q4:2021-22 and then soften.

He stated that the RBI has kept ample surplus liquidity in the banking system to foster nascent growth impulses and support long-term economic recovery.

The repo rate is the interest rate at which the country’s central bank lends funds to commercial banks. Commercial banks borrow money only when they have a cash shortage. The reverse repo rate is used by a country’s monetary policy committee to control the country’s money supply.

The April policy is one of the most important policies in recent memory, given the uncertainty caused by the Russia-Ukraine conflict, a 14-year high in oil prices in early March, and sharply rising inflation, which has emerged as a greater concern than growth.

The Indian economy is gaining traction, he said, adding that it is in better shape than the outlook presented at the previous MPC meeting. “Growth impulses are strengthening, and the inflation trajectory is more favorable than expected,” RBI Governor Shaktikanta Das said. “We hope to sail towards normal times as a result of the resilience of our economy’s economic fundamentals.”

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The Consumer Price Index (CPI) inflation rate for the fiscal year 2022 was projected to be 5.3 percent, while the CPI inflation rate for the first quarter of the fiscal year 2022-23 was projected to be 5.2 percent. In August, retail inflation was 5.3%, despite rising fuel prices.

“This has facilitated faster and more complete monetary policy transmission, as well as the orderly execution of the Government’s market borrowing program.” “The Reserve Bank will continue to manage liquidity in a way that supports the recovery while also fostering macroeconomic and financial stability,” he added.



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