The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on 8 April unanimously voted to keep the policy repo rate unchanged at 4% based on an assessment of the macroeconomic situation and outlook.
RBI Governor Shaktikanta Das said in the announcement, “The MPC unanimously decided to maintain the adjustments with a focus on the return of housing to ensure that inflation remains within the target going forward.”
The marginal standing facility (MSF) rate and the bank rate remain unchanged at 4.25%.
In addition, the Reserve Bank has decided to restore the width of the Liquidity Adjustment Facility (LAF) corridor by 50 basis points, which was the situation before the pandemic.
“The floor of the corridor will now be provided by the newly established Permanent Deposit Facility (SDF), which will be kept at 25 basis points below the repo rate, i.e. 3.75%,” he said.
Elaborating on the MPC’s rationale for its decision on the policy rate and stance, he said the expected positive gains from the Omicron wave have been offset by a sharp increase in geopolitical tensions.
“It has changed the external and domestic landscape significantly. Concerns over protracted supply disruptions have rocked global commodity and financial markets, with the two economies at war in significant portions of global production and exports of key commodities such as oil and natural gas; wheat and corn; palladium, aluminum and nickel; edible oil; and fertilizers. Global crude oil prices briefly crossed the US$130 per barrel mark, touching their highest level since 2008, and remained volatile at higher levels despite some correction.
“Global food prices have turned quite tight, along with metal and other commodity prices. Risk aversion to assets of emerging market economies (EMEs) has increased, leading to large capital outflows and a depreciation bias in their currencies. These events have, firstly, intensified projections of global inflation, which were already operating well above targets in major countries; And second, will create considerable adverse impact on production across geographies,” he said.
Emphasizing that geopolitical tensions have escalated at a time when the global economy was grappling with a sharp rise in inflation and normalization of monetary policy in major advanced economies, he said global supply chain disruptions and input cost pressures are now increasing. Hoping to last even longer.
“The resurgence of COVID-19 infections in some major economies in March and the associated lockdowns risk further exacerbate global supply constraints and input cost pressures. World trade and production and therefore external demand are likely to be weaker than what was envisaged two months ago,” he said.
Overall, external growth during the last two months has increased downside risks to the domestic growth outlook and to inflation projections presented in the February MPC proposal, he said.
Inflation is now expected to be higher and growth rate lower than assessed in February. He added that economic activity, although recovering, is barely above its pre-pandemic level.
The Governor said that as the horizon is brightening, rising geopolitical tensions have cast a shadow over our economic outlook.
Under this circumstance, real GDP growth for 2022-23 is now projected at 16.2% with Q1: 2022-23 at 7.2%; Q2 at 6.2%; Q3 at 4.1%; and Q4 at 4.0%, assuming crude oil (Indian basket) at US$ 100 per barrel during 2022-23, Mr. Das said.
Similarly, inflation is now projected at 5.7% in 2022-23, with Q1 at 6.3%; Q2 at 5.8%; Q3 at 5.4%; and Q4 at 5.1%.
In his inaugural speech, he said, “We are facing new but enormous challenges – shortages of key commodities; fractures in the international financial structure; and fear of globalization. Extreme volatility characterizes commodity and financial markets.”
“While the pandemic quickly turned from a health crisis to a life and livelihood, conflict in Europe has the potential to derail the global economy. Trapped in multiple adversities, our approach needs to be cautious but proactive to minimize the adverse impact on India’s growth, inflation and financial conditions,” he said.
“However, we are confident of the strong buffer we have created over the years, including large forex reserves, significant improvement in external sector indicators and substantial strengthening of the financial sector, all of which will help us this season. Storm. Once again, we at RBI are determined and look forward to protect the economy and emerge out of the current storm,” he added.