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In News
- Recently, the Monetary Policy Committee (MPC) of the RBI based on an assessment of the current macroeconomic situation kept key policy rates, including repo and reverse repo rates unchanged .
About Monetary Policy Committee (MPC) The Monetary Policy Committee (MPC) constituted by the Central Government under Section 45ZB of the Reserve Bank of India (RBI) Act, 1934.
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Rationale behind Keeping Policy Rate unchanged
- The MPC decided by a majority of 5 to 1 to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.
- The RBI is likely to wait for some more time as the economic recovery is uneven and the Omicron variant has dented the sentiment.
Major Highlights
- No change in Repo rate:
- The central bank has retained the repo rate at 4 per cent to boost growth.
- This means banks won’t hike lending and deposit rates and EMIs on loans will remain unchanged.
- The central bank has retained the repo rate at 4 per cent to boost growth.
- Reverse repo rate unchanged:
- The RBI has retained the reverse repo rate at 3.35 per cent.
- Marginal Standing Facility (MSF):
- It also retained the marginal standing facility (MSF) rate and kept the Bank Rate unchanged at 4.25 per cent.
- Inflation to moderate:
- The RBI has projected a 5.3 per cent consumer price (retail) inflation for the current financial year 2021-22 (FY22) despite rising crude oil prices.
- Retail inflation for the next fiscal (FY23) is projected at 4.5 per cent, below the earlier projections.
- Inflation is likely to moderate in the first half of 2022-23 and move closer to the target rate, thereafter providing room to remain accommodative.
- Timely and opposite supply-side measures from the government have substantially helped contain inflationary pressures.
- The RBI has projected a 5.3 per cent consumer price (retail) inflation for the current financial year 2021-22 (FY22) despite rising crude oil prices.
- Growth forecast:
- The central bank has projected the real GDP growth at 7.8 percent for the next financial year (2022-23) while real GDP growth at 9.2 per cent for 2021-22 takes it modestly above the level of GDP in 2019-20.
Risk Highlighted
- The MPC flagged the potential downside risks to economic activity from the highly contagious Omicron variant.
- Reassuringly, the symptoms have remained relatively mild and the pace of infections is moderating as quickly as it surged.
- There is, however, some loss of momentum in economic activity as reflected in high-frequency indicators such as purchasing managers’ indices for both manufacturing and services, finished steel consumption and sales of tractors, two-wheelers and passenger vehicles.
Way Ahead
- RBI will continue to focus on smooth completion of the government borrowing programme, market participants also have a stake in the orderly evolution of financial conditions and the yield curve.
- It is expected that market participants will engage responsibly and contribute to cooperative outcomes that benefit all.
- The RBI is likely to follow a gentle approach to the normalization and ultimately withdrawal of monetary support unlike Western central banks that have switched to a hyper-aggressive mode.
Key Terminologies
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Source:IE