The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday voted unanimously to maintain status quo with regard to the policy repo rate and by a majority of 5 to 1 to retain the accommodative policy stance.
“Consequently, the policy repo rate remains unchanged at 4%; and the stance remains accommodative 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 while announcing the policy.
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%, he said. Stating that the growth impulses seemed to be strengthening he said the inflation trajectory was turning out to be more favourable than anticipated.
“In spite of global headwinds, we hope to emerge from the storm and sail towards normal times, steered by the underlying resilience of the macro-economic fundamentals of the Indian economy,” he said.
Mr. Das said the MPC noted that economic activity over the past two months had broadly evolved in consonance with the MPC’s August assessment and outlook; and CPI inflation during July-August had turned out to be lower than anticipated. The governor said the high frequency indicators for Q2:2021-22 suggest that economic recovery has gained momentum, supported by ebbing of infections, the robust pace of vaccination, expected record kharif foodgrains production, government’s focus on capital expenditure, benign monetary and financial conditions, and buoyant external demand.
Emphasising that core inflation remains sticky he said elevated global crude oil and other commodity prices, combined with acute shortage of key industrial components and high logistics costs, are adding to input cost pressures. He said overall the aggregate demand was improving “but slack still remains; output is still below pre-pandemic level and the recovery remains uneven.”
Taking all these factors into consideration, the RBI has retained real GDP growth projection at 9.5% in 2021- 22 consisting of 7.9% in Q2; 6.8% in Q3; and 6.1% in Q4 of 2021-22.
Real GDP growth for Q1:2022-23 is projected at 17.2%. He said headline CPI inflation at 5.3% in August registered a moderation for the second consecutive month and a decline of one percentage point from its level in June 2021.
The key driver of the disinflation has been the moderation in food inflation even as fuel inflation edged up and CPI inflation excluding food and fuel inflation (core inflation) remained elevated, he said.
“Headline inflation continues to be significantly influenced by very high inflation in select items such as edible oils, petrol and diesel, LPG and medicines,” Mr Das said.
Stating that the CPI headline momentum was moderating which, combined with favourable base effects in the coming months, could bring about a substantial softening in inflation in the near-term, he said taking this into consideration the CPI inflation is projected at 5.3% for 2021-22: 5.1% in Q2, 4.5% in Q3; 5.8% in Q4 of 2021-22, with risks broadly balanced.
CPI inflation for Q1:2022-23 is projected at 5.2%. “We are watchful of the evolving inflation situation and remain committed to bring it closer to the target in a gradual and non- disruptive manner,” he said.
On the overall liquidity position in the wake of aggressive borrowing program by the government, he said RBI would ensure adequate liquidity to support the process of economic recovery. “The Reserve Bank will continue to support the market in ensuring an orderly completion of the borrowing programme of the Government,” he said.
