The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) based on an assessment of the current macroeconomic situation and the outlook, voted unanimously to keep the policy repo rate unchanged at 4%.
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, RBI governor Shaktikanta Das said in his statement on Thursday.
Thus the marginal standing facility (MSF) rate and the Bank Rate remain unchanged at 4.25% and the reverse repo rate also remains unchanged at 3.35%.
“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,” he said.
“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,” he added.
Stating that the demand for contact-intensive services is still muted, he said going forward, positive impulses for quickening the pace of recovery emanate from buoyant Rabi prospects, robust export demand, accommodative monetary and liquidity conditions, improving credit offtake, and the continued push on capital expenditure and infrastructure in the Union Budget 2022-23.
He said the MPC also noted that consumer price inflation has edged higher since its last meeting, but largely along anticipated lines.
The governor said, “Core inflation remains elevated, but demand-pull pressures are still muted. The renewed surge in international crude oil prices, however, needs close monitoring,” he added.
He said headline inflation is expected to peak in Q4:2021-22 within the tolerance band and then moderate closer to target in H2:2022-23, providing room for monetary policy to remain accommodative.
At the same time, output is just barely above its pre-pandemic level, while private consumption is still lagging.
“Global headwinds are accentuating. Overall, taking into consideration the outlook for inflation and growth, in particular the comfort provided by the improving inflation outlook, the uncertainties related to Omicron and global spillovers, the MPC was of the view that continued policy support is warranted for a durable and broad-based recovery,” he said.
The MPC has projected real GDP growth at 7.8% for 2022-23 with Q1:2022-23 at 17.2%; Q2 at 7.0%; Q3 at 4.3%; and Q4 at 4.5%.
He said the CPI inflation trajectory has moved in close alignment with the RBI’s projections.
“Core inflation remains elevated at tolerance testing levels, although the continuing pass-through of tax cuts relating to petrol and diesel last November would help to moderate input cost pressures to some extent,” he said.
Mr. Das said CPI inflation for 2022-23 is projected at 4.5% with Q1:2022-23 at 4.9-a%; Q2 at 5.0%; Q3 at 4.0%; and Q4 at 4.2%, with risks broadly balanced.
“At the current juncture, the conduct of domestic monetary policy is primarily attuned to the evolving inflation and growth dynamics even as we remain watchful of spillovers from the uncertain global developments and divergent monetary policy responses,” he added.
