Economic activity on the rise but uneven recovery; More favorable inflation trajectory, according to Shaktikanta Das
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged at the fourth bi-monthly policy meeting for fiscal year 2021-2022, Governor Shaktikanta Das said on Friday.
The MPC voted unanimously to keep key rates unchanged while it voted 5: 1 to maintain an “accommodative” stance.
Also unchanged this time, the repo rate is currently 4%. The repo rate was maintained at 3.35%.
The reverse repo rate is the rate at which banks borrow money from the Reserve Bank, while the reverse repo rate is the rate at which the RBI borrows from banks. Commercial banks only borrow funds if they find that their funds are insufficient. A country’s monetary policy committee uses the reverse repo rate as a tool to control the money supply in the country.
The central bank left key rates unchanged for the eighth consecutive time. It last revised the policy rate on May 22, 2020 in an off-turn announcement amid the coronavirus lockdown to stimulate demand by lowering the interest rate to an all-time low.
The permanent marginal facility (MSF) rate also remains unchanged at 4.25%.
The ad is in line with the expectations of the streets as they largely expected the status quo. However, analysts were anticipating a revision of liquidity forecasts amid rising global commodity prices and domestic inflation.
Inflation remains a major concern due to the imbalance between supply and demand. Economists also believe that the high commodity prices we saw during the year were not fully passed on to consumers.
Governor Shaktikanta Das said the RBI has taken more than 100 steps to proactively respond to the unprecedented crisis. India is in a much better position today than at the last MPC meeting, Das said.
According to him, growth impulses are strengthening and the inflation path is more favorable than expected. CPI inflation in July-August turned out to be lower than expected, according to Das.
Macroeconomic indicators suggest that economic activity has picked up, Das said, adding that the improving monsoon in September, Kharif’s production, an adequate food reserve and lower vegetable prices are likely to keep inflation down. muted food.
However, the governor said that although aggregate demand is improving, there is still some slack as the recovery is uneven. “Production is below pre-pandemic levels; supply side and cost pressures are affecting inflation,” Das said.
Aggregate public consumption demand support is also accelerating and the service recovery is also gaining ground, however, contact-intensive services are still lagging behind, Das said.
The RBI has retained the forecast for real GDP growth for fiscal year 22 at 9.5%. FY22 Q2 GDP growth is 7.9% vs. 7.3% earlier while Q3 FY22 GDP growth is 6.8% vs. 6.3% earlier. The GDP growth forecast for the fourth quarter of FY22 is held at 6.1% and the GDP growth forecast for the first quarter of FY23 is held at 17.2%.
Das said the VRRR should not be interpreted as a reversal of accommodative policy. “V in VRRR will also represent voluntary; no compulsion for banks to put money in this window,” he said.
The governor said the regulator does not want “surprises”, so the political approach will be calibrated and more gradualism. “I don’t want to rock the boat when we’re so close to shore,” Das said.
Among other non-political measures, the special 3-year LTRO of Rs 10,000 crore for SFBs has been extended until December 31, proposal to introduce a framework for offline retail digital payments, proposal to increase the IMPS limit per transaction to Rs 5 lakh from Rs 2 lakh have been announced.
First publication: STI