RBI Monetary Policy Statement December 2021: The RBI Monetary Policy Committee has decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 percent based on the assessment of the evolving macroeconomic situation. This was decided after the RBI Monetary Policy Committee meeting, which was held from December 6-8, 2021, informed RBI Governor Shaktikanta Das.
The RBI Monetary Policy Committee also decided to keep the reverse repo rate under the LAF unchanged at 3.35 percent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 percent. The MPC also decided to continue its accommodative stance as long as necessary to revive and sustain growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target.
The decisions are in line with RBI's objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent while supporting growth.
Check the tweet below to watch full address by RBI Governor Shaktikanta Das
Address by Shri Shaktikanta Das, Governor, Reserve Bank of India https://t.co/dJRQ7nUy9L
— ReserveBankOfIndia (@RBI) December 8, 2021
RBI Monetary Policy Committee Statement- Know in 10 points
1. Global Economy Assessment: The spike in infections across the world along with the emergence of the Omicron variant and persistence of supply chain disruptions and elevated commodity prices continue to weigh on global economic activity. The global trade is slowing down after a sharp rebound due to the disruptions in port services and turnaround time along with elevated freight rates. The commodity prices have also remained elevated despite some softening since late October and further drop towards November end. Headline inflation has increased in several advanced economies (AEs) and emerging market economies (EMEs), which has led several central banks to continue tightening and others to bring forward policy normalisation.
2. Domestic Economy Assessment: The real gross domestic product (GDP) expanded by 8.4 percent year-on-year (y-o-y) in the second quarter of FY 2021-22, following a growth of 20.1 percent during the first quarter, as per the data released by the National Statistical Office (NSO) on November 30th. The economic recovery has been gaining momentum with exports and imports exceeding their pre-COVID levels. The real gross value added (GVA) also increased by 8.5 percent y-o-y during the second quarter of the current fiscal. The domestic economic activity is expected to get more momentum in the third quarter with expanding vaccination coverage and subsiding of new infections.
3. GDP Projection: The real GDP growth projection has been retained at 9.5 percent in the Fiscal Year 2021-22, comprising 6.6 percent in Q3 and 6.0 percent in Q4 of 2021-22. The real GDP growth is projected to be 17.2 percent for the first quarter of FY 2022-23 and 7.8 percent for the second quarter of FY 2022-23.
4. Urban demand has been on a rebound along with intensive services activities with improving consumer optimism, supported by festival demand. The exports grew for the ninth month in a row in November. There was also a rise in non-oil, non-gold imports amid reviving domestic demand.
5. Inflation: The headline CPI inflation went up to 4.5 percent in October from 4.3 percent in September due to crop damage from heavy rainfalls in October in several states. The fuel inflation touched an all-time high of 14.3 percent in October, driven up by the international prices of liquefied petroleum gas and kerosene. The core inflation excluding food and fuel also remained elevated at 5.9 percent during September-October.
6. Liquidity conditions: As per MPC, the liquidity conditions remained in large surplus through the fixed-rate reverse repo and the variable rate reverse repo (VRRR) operations under the liquidity adjustment facility (LAF) averaging ₹8.6 lakh crore in October-November. The reserve money expanded by 7.9 percent year-on-year, while the Money supply (M3) and bank credit by commercial banks rose by 9.5 percent and 7.0 percent respectively year-on-year. India’s foreign exchange reserves also rose by USD 58.9 billion in 2021-22 to USD 635.9 billion.
7. Economic Outlook: As per MPC, the inflation trajectory will depend on several factors going forward. The rise in vegetable prices due to heavy rains in October and November is likely to reverse in winter. The supply side interventions by the Government continue to restrain the pass-through of elevated international edible oil prices to domestic retail inflation. The crude oil prices have seen a significant correction in the recent period.
8. CPI Inflation Projection: The core inflation is though still impacted by high industrial raw material prices, transportation costs and global logistics and supply chain bottlenecks. The CPI inflation is projected to be 5.3 percent for 2021-22, which includes 5.1 percent in Q3, 5.7 percent in Q4 of FY 2021-22. The CPI inflation for Q1 of FY 2022-23 is projected at 5.0 percent and at 5.0 percent for Q2 of the same fiscal year.
9. Recovery: The domestic economic activity recovery is expected to be increasingly broad-based with the expanding vaccination coverage and fall in fresh COVID-19 cases. The rural demand is expected to remain resilient. The rise in contact-intensive activities is expected to continue to bolster urban demand. The RBI surveys predict improving business outlook and consumer confidence.
10. Omicron impact: However, the volatile commodity prices along with persisting global supply disruptions along with the new Omicron COVID variant and financial market volatility pose risks to the outlook. The RBI has retained its projections for real GDP growth taking all these factors into consideration and assuming no resurgence in COVID-19 infections in India.
The next Monetary Policy Meeting is scheduled for February 7-9,2022.
Background
The last RBI Monetary Policy Committee meeting was held October 6-8,2021 when it had decided to keep the policy repo rate unchanged at 4.0 percent and reverse repo rate unchanged at 3.35 percent and bank rate and marginal standing facility (MSF) rate unchanged at 4.25 percent. The MPC had also retained the real GDP growth projection at 9.5 percent in 2021-22, including 7.9 percent in Q2, 6.8 percent in Q3 and 6.1 percent in Q4 of 2021-22.
FAQs on RBIWho is the current RBI Governor? Shaktikanta Das How often is the RBI Monetary Policy Committee meeting held? Once in two months What is the composition of the Reserve Bank of India? The Reserve Bank of India has one Governor and four Deputy Governors. RBI Emblem- The RBI emblem has a Panther and Palm tree |
Read more: RBI Monetary Policy Statement October
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