The Reserve Bank of India has projected real GDP growth at 7.8 percent for the fiscal year 2022-23, informed RBI Governor Shaktikanta Das while announcing RBI's bi-monthly monetary policy decisions on February 10, 2022.
RBI's Monetary Policy Committee (MPC) had begun its three-day deliberations on February 8th instead of 7th due to the Maharashtra government's decision to declare February 7 as a public holiday to mourn the passing of the singing legend Lata Mangeshkar.
The RBI has decided to continue its accommodative stance and has kept the repo rate unchanged at 4 percent and the reverse repo rate unchanged at 3.35 percent. The CPI inflation projection has been retained at 5.3% for FY 2021-22 and 4.5% for FY 2022-23.
CPI inflation projection retained at 5.3% for FY 2021-22, and 4.5% for FY 2022-23: RBI
— ANI (@ANI) February 10, 2022
Impact of COVID Waves
The RBI Governor stated that the pandemic holds the global economy hostage once again. He said, despite signs of moderation, record numbers of daily infections in several countries and containment measures are impacting the pace of economic activity, especially in contact-intensive sectors and causing supply disruptions.
The evolving macroeconomic environment is being rendered highly uncertain by divergent monetary policy intentions and actions and financial market volatility and geo-political tensions are adding layers of ambivalence to the outlook.
The RBI Governor noted that India is charting a different course of recovery from the rest of the world and India is poised to grow at the fastest pace year-on-year among major economies, as per projections by IMF. Das stated that this recovery will be supported by large-scale vaccination and sustained fiscal and monetary support.
"Protecting life is paramount and protecting livelihood is rising in the hierarchy of priorities," Shaktikanta Das said, adding that the focus is on securing the economic and financial conditions of the most vulnerable population. He added that the effort is to limit the extent of disruptions to economic activity.
Monetary Policy Committee: Key Decisions
The Monetary Policy Committee (MPC) met on February 8th, 9th and 10th to assess the current macroeconomic situation and take key decisions.
The MPC voted by a majority of 5 to 1 to continue with its accommodative stance as long as necessary to revive and sustain growth on a durable basis, while ensuring that inflation remains within target.
It voted unanimously to keep the policy repo rate unchanged at 4 percent, marginal standing facility (MSF) rate and the Bank Rate unchanged at 4.25 percent and reverse repo rate unchanged at 3.35 percent.
Inflation
The MPC noted that consumer price inflation has risen higher since its last meeting but still along the anticipated lines. The recent increase in inflation in December was due to unfavourable base effects despite a month-on-month decline in prices. Though there is softening in food prices, the core inflation remains elevated and there is a renewed surge in international crude oil prices. The headline inflation is expected to peak in the fourth quarter of FY 2021-22 within the tolerance band and reach closer to the target in the second half of FY 2022-23.
The MPC noted that while output is just barely above its pre-pandemic level, private consumption is still lagging. Overall, after reviewing the current outlook for inflation and growth and the uncertainties related to Omicron and global spillovers, the MPC was of the view that continued policy support is required to enable a durable and broad-based recovery.
The MPC has retained inflation projection for 2021-22 at 5.3 percent, with Q4 at 5.7 percent. The CPI inflation for 2022-23 is projected at 4.5 percent with the first quarter of FY 23 projected at 4.9 percent, Q2 at 5.0 percent, Q3 at 4.0 percent and Q4 at 4.2 percent, with risks broadly balanced.
Domestic Growth
The MPC noted that private, which is the mainstay of domestic demand, continues to trail behind the pre-pandemic level. In addition, the continuous increase in international commodity prices along with a surge in the volatility of global financial markets and supply bottlenecks can increase risks to the economic outlook.
However, the Indian government’s thrust on capital expenditure and exports are expected to enhance productive capacity and strengthen aggregate demand. It is also expected to increase private investment. RBI's policy actions are expected to further provide an impetus to investment activity.
Overall, domestic growth drivers are gradually improving and considering all these factors, RBI has projected real GDP growth at 7.8 percent for the fiscal year 2022-23 with Q1:2022-23 at 17.2 percent; Q2 at 7.0 percent; Q3 at 4.3 percent and Q4 at 4.5 percent.
Liquidity and Financial Market Conditions
India's financial sector has remained fully functional amid the COVID crisis and has anchored the process of recovery and as per RBI's assessment, its policy actions have yielded the desired results in a smooth and orderly manner.
The policymakers, however, face daunting challenges as recovery from the pandemic remains incomplete amid geo-political tensions, elevated by crude oil prices and
persistent supply bottlenecks.
The Reserve Bank of India has been and will continue to insulate the domestic economy and financial markets from these spillovers. The RBI will continue to focus on smooth completion of the government borrowing programme and it is expected that market participants will engage responsibly and contribute to cooperative outcomes that benefit all.
Comments
All Comments (0)
Join the conversation