IT Correspondent
Mumbai, Feb 11
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the repo rate unchanged while announcing the monetary policy for 2022 on Thursday.
The MPC left the key policy rates unchanged and retained its accommodative policy stance to support the “uneven economic recovery” in the wake of the Covid pandemic.
The RBI kept the repo rate — the rate at which the RBI lends to banks — unchanged for the tenth time in a row at 4 per cent. All six members of the MPC, headed by RBI Governor Shaktikanta Das, voted to keep the repo rate intact while one member, Jayanth Varma, dissented against retaining the accommodative policy stance.
The reverse repo rate was retained at 3.35 percent. The reverse repo rate is the rate at which RBI borrows from banks. A hike in this rate would have meant that the central bank wanted to absorb more money, or liquidity, from the banking system and would have signalled the start of the reversal of the monetary policy cycle that would eventually lead to a rise in rates.
Similarly the Marginal Standing Facility rate was fixed at 4.25%.
The MPC maintained its policy stance of ‘accommodative’ as long as necessary to revive and sustain growth on a durable basis, while ensuring that inflation remains within the target going forward.
The CPI inflation trajectory has moved in close alignment with RBI projections. Going forward, vegetables prices are expected to ease further on fresh winter crop arrivals. The softening in pulses and edible oil prices is likely to continue in response to strong supply-side interventions by the Government and increase in domestic production. The hardening of crude oil prices, however, presents a major upside risk to the inflation outlook. While cost-push pressures on core inflation may continue in the near term.
The transmission of input cost pressures to selling prices remains muted in view of the continuing slack in demand. Taking into consideration above factors, CPI inflation projection has been retained at 5.3% for FY22; Q4FY22 has been retained at 5.7%, with risks broadly balanced. On the assumption of normal monsoon, inflation for FY23 is projected at 4.5%.
Recovery in domestic economic activity is yet to be broad-based, as private consumption and contact-intensive services remain below pre-pandemic levels. Going forward, the outlook for the Rabi crop bodes well for agriculture and rural demand. Government’s thrust on capital expenditure and exports are expected to enhance productive capacity and strengthen aggregate demand. Global financial market volatility, elevated international commodity prices, especially crude oil, and continuing global supply-side disruptions pose downside risks to the outlook. Taking into consideration above factors, Real GDP growth is projected at 7.8% for FY23
We remain constructive on the short to medium end of the yield curve; Medium Duration Funds, Short Duration funds, Banking & PSU Debt funds, Corporate Bond funds, Floating Rate funds, Money Market funds, Low Duration funds and Ultra Short Duration funds can be considered by investors with an investment horizon commensurate with the maturity profile of the schemes.
The policy announced by the RBI Governor, Dr. Shaktikanta Das is accommodative with intent to promote economic recovery and growth by not changing Repo Rate and keeping status quo of the policy announced earlier said Dr. Vijay G. Kalantri, President, All India Association of Industries (AIAI).
GDP economic growth predictive of 7.8% is realistic and inflation which is kept on 4.5% maybe higher and shall depending on the international factors but reduction in taxes could lower the inflation rate, which can boost growth and relief to all sections of society he added.
