RBI Monetary Policy Highlights: Repo rates remain unchanged at 4%, GDP growth projected at 7.2% for FY 23

RBI April Monetary Policy: The Reserve Bank of India’s Monetary Policy Committee on April 8, 2022, voted to keep the benchmark repo and reverse repo rates unchanged for the straight 11th time in a row. The Governor of the Reserve Bank of India Shakitkanta Das stated in his Monetary Policy Statement that the Committee has voted unanimously to leave the repo rates unchanged at 4 percent. The Monetary Policy Committee has also voted unanimously to keep the stance accommodative.

The repo rate is the rate of interest at which the Reserve Bank of India lends short-term funds to the banks. On the other hand, the reverse repo rate will remain unchanged at 3.35 percent. The Reverse Repo rate is the interest rate at which the RBI borrows from banks. 

The RBI Governor further informed that the Marginal Standing Facility (MSF) rate and the Bank rate have remained unchanged at 4.25 percent.  

Monetary Policy Committee met on 6th, 7th and 8th April. Based on an assessment of the macro-economic situation and the outlook, MPC voted unanimously to keep the Policy Repo Rate unchanged at 4%: RBI Governor Shaktikanta Das pic.twitter.com/KCEsp4BnMU

— ANI (@ANI) April 8, 2022

RBI to restore LAF corridor to 50 bps

RBI Governor after the Monetary Policy meeting announced that the Reserve Bank of India will restore the liquidity adjustment facility (LAF) to 50 bps, as it was in the time of pre-COVID. MSF and Bank rates also remain unchanged at 4.25 per cent. 

The Governor said that the floor of the corridor will now be provided by the newly instituted standing deposit facility, which will be placed 25 basis points below the repo rate, i.e. at 3,75 per cent.

Marginal standing facility, i.e. MSF rate & bank rate remain unchanged at 4.25%. Further, it has been decided by Reserve Bank to restore the width of liquidity adjustment facilities, i.e. LAF corridor to 50 basis points - the position that prevailed before the pandemic: RBI Gov pic.twitter.com/kSRCU7YhKq

— ANI (@ANI) April 8, 2022

RBI projects GDP growth at 7.2%, inflation at 5.7%

Das while speaking on the Gross Domestic Product (GDP) growth rate in 2022-23 said that the real GDP growth is now projected at 7.2% with Quarter 1 2022-23 at 16.2%, Q2 at 6.2%, Q3 at 4.1%, and Q4 at  4.0%.

While speaking on the inflation forecast, the Governor added that inflation is now projected at 5.7% in 2022-23, with Q1 at 6.3%, Q2 at 5.8%, Q3 at 5.4% while Q4 at 5.1 per cent.

Real GDP Growth for the year 2022-23 is now projected at 7.2% with Q1 2022-23 at 16.2%, Q2 at 6.2%, Q3 at 4.1% and Q4 at 4%, assuming crude oil that is Indian basket at USD 100 per barrel during the year 2022- 23: RBI Governor Shaktikanta Das pic.twitter.com/j74R1cAGsv

— ANI (@ANI) April 8, 2022

Three different aspects to deal with merging crisis and challenges: RBI Governor

RBI Governor listed the first significant improvement in the external sector, the second will be the Foreign Exchange Reserves which are at very comfortable levels and the third is the substantial strengthening of the financial sector.

I am emphasizing on 3 different aspects which place us in a position that would enable us to deal with the merging crisis and challenges. First, significant improvement in the external sector. Second, Foreign Exchange Reserves which are at very comfortable levels: RBI Governor pic.twitter.com/aphp9PsH1G

— ANI (@ANI) April 8, 2022

Global economy witnesses tectonic shifts with war in Europe

During the briefing on RBI Monetary Policy 2022, the Governor of the Reserve Bank of India stated that the world is confronted with new and humongous challenges such as shortage in key commodities, fear of de-globalization, and fractures in international financial structure. 

Das further added that the global economy is witnessing tectonic shifts with the commencement of the war in Europe, followed by extended sanctions and escalating geopolitical tensions. 

While the Coronavirus pandemic morphed into a health crisis, conflict in Europe has the potential to derail the global economy. He added that India's approach needs to be cautious and proactive. 

Caught in the cross-currents of multiple headwinds, our approach needs to be cautious but proactive in mitigating the adverse impact on India's growth, inflation and financial conditions: RBI Governor Shaktikanta Das pic.twitter.com/VOr3F5DR3u

— ANI (@ANI) April 8, 2022

Background:

The latest RBI Monetary Policy is the 11th consecutive policy review when the Reserve Bank of India has decided to maintain a status quo on the key policy rates. RBI has not also changed repo and the reverse repo rates since May 2020.

Shaktikanta Das has said that the Monetary Policy Committee has also decided to maintain an accommodative policy stance in the recent announcements.