RBI maintains status quo: Key takeaways from MPC policy review

In the third bi-monthly monetary policy review for FY22, which comes at a time the country stares at a looming threat of a third wave of the Covid-19 pandemic amid a slow pace of vaccination coverage, the Reserve Bank of India has maintained status quo in policy for the seventh straight time as was widely expected.

Here are the key takeaways from the policy announcements 

Status Quo 

The Monetary Policy Committee (MPC) has decided to maintain status quo and keep interest rates unchanged. Currently, the repo rate is 4% and reverse repo rate is 3.35%.

The MPC has maintained the repo rates – the key interest rates at which the RBI lends money to commercial banks – steady at 4%. The reverse repo rate – the rate at which RBI borrows money from banks, was also unchanged at 3.35%. MSF rate and bank rate remain unchanged at 4.25%

All members of the RBI monetary policy committee voted unanimously to keep the interest rates unchanged and maintain its accommodative stance for as long as as required to revive the economy amid the COVID-19 pandemic.

CPI projection for FY22 at 5.7%

RBI governor said that CPI inflation surprised on the upside in May 2021. RBI estimates CPI inflation at 5.7% for FY22.

” Pre-emptive monetary policy response at this stage will kill the nascent recovery. Inflation may remain close to RBI’s upper tolerance band until Q2FY22. See CPI at 5.7% for FY22 vs 5.1% projected earlier. See Q2FY22 CPI inflation at 5.9%, Q3 FY22 at 5.3% and Q4 FY22 at 5.8%”, said RBI Governor Shaktikanta Das.

Although he said that moderation in oil prices will help ease CPI. Going forward, the revival of south-west monsoon and the pick-up in kharif sowing, buffered by adequate food stocks should help to control cereal price
pressures.

GDP projection retained at 9.5% for FY22

RBI Governor Shaktikanta Das said that economy is in a better position now than during the June meeting.

RBI has retained GDP growth projection at 9.5% for current fiscal. The RBI statement read that the economy is recovering from setback of second wave of Covid-19 and economic activity will pick up on vaccination. However he mentioned that Elevated levels of global commodity prices and financial market volatility are, however, the main downside risks

RBI Governor Shaktikanta Das said that the gross domestic product (GDP) growth projected for the current fiscal 2021-22 is retained at 9.5%t. The RBI Governor added that the growth is projected at 21.4% in Q1, 7.3% in Q2, 6.3% in Q3, and 6.1% in Q4.

The Real GDP for FY23 is projected at 17.2%.

He also said that the fiscal, monetary and sectoral policy needs to be structured in accommodative manner to aid growth. The governor also said that the RBI’s priority is to nurture growth impulses and that they remain optimistic for the economy

Demand outlook

The governor said, “The aggregate demand is improving with weak underlying conditions. We need more steps to help in demand-supply balance in many sectors. We are in the midst of extra-ordinary situation arising out of pandemic.”

He also said that domestic economic activity has started normalising post phase re-opening of the economy. The consumption, investment & external demand are all on path of regaining traction. Th external demand remained buoyant. Global commodity prices and financial market volatility are downside risk to economic activity.

Covid-19

The RBI maintained that domestic economic activity is starting to recover with the ebbing of the second wave. Looking ahead, agricultural production and rural demand are expected to remain resilient.

Das said that we continue to remain vigilant against the possibility of a third Covid wave.

Das concluded his statement, quoting Mahatma Gandhi’s quote “I am an irreplaceable optimist but I always base my optimism on solid facts”