RBI MPC Statement Highlights: Real GDP growth projected at 7.8% for 2022-2023 but Das sounds caution on crude prices

The Reserve Bank of India Thursday decided to continue policy support for a durable and broad-based recovery in the economy and kept the key policy repo rate unchanged at 4 per cent ensuring a whole host of home, auto and personal loans remain cheap for borrowers. Announcing the monetary policy committee decision, Governor Shaktikanta Das said the private consumption continued to trail the pre-pandemic levels and cut the economic growth projection for the financial year 2022-23 to 7.8 per cent from 9.2 per cent in the current year ending March 31. However, he sounded caution on rising prices of crude amid global spillovers and geopolitical uncertainties.

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On inflation, the Governor said hardening of global crude oil prices presented upside risk to inflation but hoped it would broadly remain within the tolerance band of the central bank at 2-6 per cent.

There is some loss of economic momentum due to the third pandemic wave and demand for contact intensive sector is mute, the Governor said.

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Indices trade higher as RBI keeps repo rate unchanged

Bulls regained control over the stock markets just after RBI Governor Shaktikanta Das announced that the central bank won't be changing the repo rate and reverse repo rate, maintaining its accommodative stance.

While the Sensex was up 0.21 per cent post the announcement, Nifty50 was up 0.22 per cent. At 10:30 am, Sensex was trading at 58,795.06, up 329.09 points or 0.56% per cent. Meanwhile, Nifty was trading at 17,556.50, 92.70 points (0.53 per cent).

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In the absence of determinate knowledge about the next mutation of Covid-19, the ability to forecast the future course of the economy is so contingent on the evolution of virus as one progress is as good and as bad as the other and as ephemeral

Virus taught us to be humble, optimistic, like Lata Mangeshkar, who we recently lost said, 'Aaj phir jeene ki tamanna hai'

Satisfaction lies in the effort, full effort is full victory, Das concludes MPC statement, quoting Mahatma Gandhi

Additional measures

Schemes on on-tap liquidity measures for health and contact intensive service sectors to be expented till end June 30th.

Voluntary root scheme extended to Rs 2.5L cr

Rupee derivative markets: Banks allowed to undertake transactions in FCSOIS markets with non-residents and others

Cap of e-rupee vouchers increased from Rs 10,000 to Rs 1L

Better infra: NAC mandate limit for TRDS increased to Rs 3 cr

Emerging economies vulnerable to global spillovers: Das

RBI has been and will continue to insulate the economy from these spillovers, says Das

FDI flows remain strong, which alongwith other capital inflows will comfortably finance current accunt deficits: Das

forex markets: Rupee has shown resilience in the face of global spillovers, says Das

External sector sustainability is anchored by high forex reserve buffers and a modest level of current account deficit

Das announces liquidity management measures

Variable repo operations of varying tenures to be conducted as and when required
Variable rate repo and variable rate reverse repo auctions of 14 days tenure will operate as main liquidity management tool
Main operations supported by fine-tuning operations
From March 1, fixed rate reverse repo and MSF operations to continue 1730 to 2359 on all days

Passive mode of liquidity management worked well: Das

Effective reverse repo rate increased from 3.37% to 3.87%: Das

Key to effective liquidity management is timing, says Das

RBI undertook slew of measures to deal with pandemic: Das

Banks well advised to strengthen their corporate governance and risk strategies: Das

Strengthening regulatory and supervisory framework for banking and non banking financial sectors: Das

Strong and well-functioning financial sector fortifies growth and development: Das

CPI inflation for 2022-23 projected at 4.5%: Das

Outlook for inflation for 2022-2023 retained at 5.3%: Das

Risks from Omicron wane, there could be softening of core inflation: Das

Hardening of crude oil prices presents major upside risk: Das

Real GDP growth projected at 7.8% for 2022-2023: Das

Prospects for agriculture have brightened on progress in winter crop sowing: Das

Food inflation remains inflated: Das

Outlook for inflation and growth: Uncertainties related to Omicron and global spillovers, MPC is of the opinion that continued policy support warranted for durable recovery

Headline inflation expected to peak in teh current quarter within the tolerance band: Das

Demand-pull pressures still muted: Das

MPC noted that CPI has edged higher but largely along the anticipated lines. Increase in inflation in Dec was due to unfavourable base effect: Das

MSF rate also unchanged

Reverse Repo rate unchanged at 3.35%: Das

Repo rate unchanged at 4% and RBI to retain accomodative stance to mitigate Covid-19 impact: Das

Frontline workers admirably rose in the line of duty: Das

Inflation at multi-decadal highs, the evolving macroeconomic environment is being rendered highly uncertain: Das

Pandemic has held the world hostage, denting the pace of economic activity: Das

Shaktikanta Das begins briefing, extends season's greetings

WATCH | RBI MPC Statement

What experts expect from policy statement

"RBI's policy announcement will be the key focus tomorrow as domestic inflation and policy tightening by global central banks would pressurise the central bank to adopt a similar stance," said Vinod Nair, Head of Research at Geojit Financial Services.

Deepak Jasani, Head of Retail Research, HDFC Securities, said, "Advance decline ratio has turned positive. Nifty has commenced its journey up ahead of the RBI MPC meet outcome on Thursday."

"Seeming cooling off of Russia-Ukraine tussle and reversal in oil prices have helped sentiments turn up across the globe. In case the RBI raises repo rate (and not reverse repo rate) the markets could take it negatively," he noted.

Positive cue from markets ahead of RBI MPC statement

Sensex on Thursday rose 111.34 points to 58,577.31 in the opening session, while Nifty advanced 34 points to 17,497.80 ahead of the MPC statement

To manage the current liquidity needs, the Reserve Bank of India should look at raising reverse repo rate by 20 basis point but outside the purview of the MPC, said SBI Ecowrap report.

The rate is the interest banks earn on the deposit of their surplus funds with the RBI.

In the backdrop of a massive spike in bond yields post the Union Budget, a few economists, however, suggested the RBI may help douse the fire by announcing to buy long-end government debt and simultaneously sell short-tenor bonds to keep borrowing costs down.

The policy statement would be closely watched for signals of a shift in policy stance and the potential timelines for change in policy rates

The central bank is likely to leave interest rates unchanged this time around to help the government's capital expansion programme to culminate into better economic growth