RBI announces Bi-monthly policy; Maintains status quo in policy rates

The Reserve Bank of India today maintained the status quo in policy rates as the Monetary Policy Committee (MPC) voted unanimously to keep the policy repo rate at 4 per cent to keep the stance accommodative. While announcing the Bi-monthly policy RBI Governor Shaktikant Das said, the MSF rate and bank rate will remain unchanged at 4.25 per cent. The reverse repo rate will also remain unchanged at 3.35 per cent.

Shaktikant Das said that MPC has voted 5-1 to continue accommodative monetary policy stance as long as necessary to revive and sustain growth and mitigate the impact of #COVID19 on the economy while ensuring inflation remains within target.

Speaking about the GDP growth, the RBI governor said, Notwithstanding a highly transmissible third wave driven by the Omicron variant of COVID-19, India is charting a different course of recovery from the rest of the world. It is poised to grow fastest among the major economies, as per the projections made by the IMF. This recovery is supported by large scale vaccination & sustained fiscal & monetary support. He said that the focus is on securing the economic and financial conditions of the vulnerable, the wage earners and all those who suffer the most. Accordingly, the emphasis is shifting to targeted containment strategies and a push towards universal vaccination and booster doses.

Speaking about inflation RBI Governor said, the increase in inflation in December was entirely due to unfavourable base effects despite a month-on-month decline in prices. But large buffer stocks of cereals and effective supply-side measures have augured well for food inflation. Core inflation remains elevated, but demand-pull pressures are still muted. He cautioned that the renewed surge in international crude oil prices will have to be closely monitored.

He projected real GDP growth at 9.2 per cent for 2021-22 and said that it is modestly above the level of GDP for 2019-20. Real GDP growth for 2022-23 was projected at 7.8 per cent. At the same time, he also pointed out the persistent rise in international commodity prices, a surge in the volatility of financial markets and supply bottlenecks which can pose risks to these projections.

He underlined that the government's thrust on capital expenditure and exports was expected to enhance productive capacity and strengthen aggregate demand. CPI inflation for 2022-23 was projected at 4.5 per cent.

He added that policy actions of RBI have yielded desired results and it is now turning to rebalance liquidity. He announced that Variable Rate Repo operations of varying tenures will henceforth be conducted as and when warranted.

Secondly, variable rate repo and variable rate reverse repos of 14-day tenures will operate as the main liquidity management tool. He informed that from March 1, 2022, fixed-rate reverse repo and MSF operations will be available only from 5.30 PM to 11.59 PM on all days, instead of from 9.00 AM to 11.59 PM.

He also announced some additional measures like an extension of On-tap Liquidity Facilities for Emergency Health Services and Contact-intensive Sectors, voluntary retention route (VRR) - Enhancement of Limits, Review of Credit Default Swaps (CDS) Guidelines, Permission for Banks to deal in Foreign Currency Settled - Rupee Derivatives Market etc.