Mumbai: The Reserve Bank of India in its monetary policy review has kept the repo rate unchanged at 4 percent and reverse repo rate at 3.35 percent. RBI Governor Shaktikanta Das while announcing the Monetary policy today said the Monetary Policy Committee (MPC) while assessing the macroeconomic situation and the outlook voted unanimously to keep the policy repo rate unchanged at 4 percent.
The marginal standing facility (MSF) rate and the Bank rate remain unchanged at 4.25 percent. Further, it has been decided to restore the width of the Liquidity Adjustment Facility (LAF) corridor to 50 basis points, the position that prevailed before the pandemic. The floor of the corridor will now be provided by the newly instituted standing deposit facility (SDF), which will be placed 25 basis points below the repo rate at 3.75 percent.
Referring to the ongoing Russia-Ukraine war preceded by the Covid pandemic, the Governor said the geopolitical tensions have exacerbated at a time when the global economy was grappling with a sharp rise in inflation and consequent monetary policy normalization in major advanced economies. World trade and output and hence external demand are likely to be weaker than envisaged two months ago. He observed that overall, the external developments during the past two months have led to the materialization of downside risks to the domestic growth outlook and upside risks to inflation projections presented in the February MPC resolution.
He said, inflation is now projected to be higher and growth lower than the assessment in February. Economic activity, although recovering, is barely above its pre-pandemic level. Against this backdrop, the MPC decided to retain the repo rate at 4 percent, he added.
He said it is also decided to remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth. Mr. Das said, although India’s direct trade exposure to countries at the epicenter of the conflict is limited, the war could potentially impede the economic recovery through elevated commodity prices and global spillover channels.
Further, financial market volatility induced by monetary policy normalization in advanced economies renewed COVID-19 infections in some major countries with augmented supply-side disruptions and protracted shortages of critical inputs. Taking all these factors into consideration, real GDP growth for 2022-23 is now projected at 7.2 percent assuming crude oil (Indian basket) at 100 US dollars per barrel during 2022-23.
The Central Bank Chief said given the excessive volatility in global crude oil prices since late February and the extreme uncertainty over the evolving geopolitical tensions, any projection of growth and inflation is fraught with risk and is largely contingent upon future oil and commodity price developments.
In this context, continuation and deepening of supply-side measures may alleviate food price pressures and also mitigate cost-push pressures across manufacturing and services. The Governor assured all stakeholders that as in the past, the Reserve Bank will use all its policy levers to preserve macroeconomic stability and enhance the resilience of our economy.
