The Monetary Policy Committee (MPC) of the Reserve Bank of India, (RBI) based on an assessment of the evolving domestic and global macroeconomic and financial conditions and the outlook, voted unanimously to keep the policy repo rate unchanged at 4%. The MPC also decided on a 5 to 1 majority 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, Governor Shaktikanta Das said in his statement. The marginal standing facility (MSF) rate and the bank rate remain unchanged at 4.25%. The reverse repo rate also remains unchanged at 3.35%. The projection of real GDP growth is retained at 9.5% in 2021-22 consisting of 21.4% in Q1; 7.3%in Q2; 6.3% in Q3; and 6.1% in Q4 of 2021-22. Real GDP growth for Q1:2022-23 is projected at 17.2%, the governor said. He said headline CPI inflation edged up sharply to 6.3% in May and it may remain close to the upper tolerance band up to Q2:2021-22, but these pressures should ebb in Q3:2021-22 on account of kharif harvest arrivals and as supply side measures take effect. “Taking into consideration all these factors, CPI inflation is now projected at 5.7% during 2021-22: 5.9% in Q2; 5.3% in Q3; and 5.8% in Q4 of 2021-22, with risks broadly balanced,” he said. CPI inflation for Q1:2022-23 is projected at 5.1%. Announcing the monetary policy on Friday Mr Das said, “We are in a much better position than at the time of the MPC’s meeting in June 2021. As the second wave of the pandemic ebbs, containment eases and we slowly build back, vaccine manufacturing and administration are steadily rising.” “Yet the need of the hour is not to drop our guard and to remain vigilant against any possibility of a third wave, especially in the background of rising infections in certain parts of the country,” he said. Expressing concern in rising inflation the governor said consumer price inflation surprised on the upside in May, reflecting a combination of adverse supply shocks, elevated logistics costs, high global commodity prices and domestic fuel taxes. “In June, headline inflation remained above the upper tolerance level, but price momentum moderated. Also, core inflation softened from its peak in May. International crude oil prices remain volatile; any moderation in prices as a consequence of the OPEC plus agreement could contribute towards alleviating inflation pressures,” he said. He said the outlook for aggregate demand was improving, but the underlying conditions were still weak. “Aggregate supply is also lagging below pre-pandemic levels. While several steps have been taken to ease supply constraints, more needs to be done to restore supply-demand balance in a number of sectors of the economy,” he said. “The recent inflationary pressures are evoking concerns; but the current assessment is that these pressures are transitory and largely driven by adverse supply side factors. We are in the midst of an extraordinary situation arising from the pandemic,” he added.
