RBI April Monetary Policy: Central bank leaves repo rate unchanged; continues with 'accommodative' stance

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged in its first bi-monthly policy meeting of FY23, Governor Shaktikanta Das said on Friday. This is the 11th time in a row that the central bank has maintained a status quo on the key policy rate.

With no change this time as well, the repo rate currently stands at 4 percent. The reverse repo rate has been maintained at 3.35 percent.

The central bank has decided to continue with “accommodative” stance though with a focus on withdrawal "to ensure inflation remains within target while supporting growth". The RBI in previous policies had said that the “accommodative” stance could continue for as long as necessary to revive growth.

In the last 10 meetings as well, the MPC had maintained an ‘accommodative’ monetary policy stance.

The repo rate is the rate at which the central bank of the country lends funds to the commercial banks. The commercial banks borrow funds only if they witness a shortfall in their funds. The monetary policy committee of a country uses the reverse repo rate as a tool to control the money supply in the country.

The April policy is one of the most crucial policies of recent times amid uncertainties caused by the Russia-Ukraine conflict, surge in oil prices that hit a 14-year high in early March, and sharply surging inflation which has emerged as a bigger concern than growth.

The announcement is in line with the Street's expectations as largely it was expecting a status quo by the central bank.

A CNBC-TV18 poll of economists and market watchers had predicted a status quo on policy rate with most respondents expecting the central bank to leave it unchanged.

The governor said the central bank began the journey of fighting COVID impact on economy two years ago and has "successfully navigated course through turbulent waters".

Das said that consumer confidence was increasing with railway freight, GST collections, toll collections, electricity demand and import of goods reporting  robust growth in February and March.

Business confidence is also in optimistic territory and investment activity may gain traction going ahead, he added.

The RBI said the liquidity adjustment facility would be brought back to the pre-pandemic levels. "As situation normalised, we have taken steps to re-balance liquidity conditions," said the governor.

However, the commencement of geopolitical tensions has led to tectonic shifts in global economy, said Das, adding that there are fears of deglobalisation.

"Conflict in Europe has potential to derail the global economy," he said.

The governor said that the approach needs to be cautious but proactive in mitigating impact on growth inflation and financial conditions.

There is materialised risk to downside of GDP growth while inflation is now projected to be higher than the February expectations due to escalating geopolitical tensions.

The GDP growth for FY23 is now seen at 7.2 percent while for Q1, it is seen at 16.2 percent and for Q2, Q3 and Q4, it is seen at 6.2 percent, 4.1 percent and 4 percent, respectively.

On inflation, Das said the spike in international crude oil prices was a substantial risk. A sharp rise in domestic pump prices could result in broad based second round price pressures, he added.

Feedstock pressures could continue and may have a spillover impact on poultry, dairy prices, said Das, who added that the financial market is likely to remain volatile.

The retail inflation is estimated at 5.7 percent for FY23 and at 6.3 percent for Q1, 5.8 percent for Q2, 5.4 percent for Q3 and 5.1 percent for Q4.

Among the non-policy announcements, the RBI proposed to make cardless cash withdrawals across banks and ATMs using UPI. "Will set up a committee for customer service to suggests measures to improve customer service," said Das.

The central bank extended rationalised risk weights for housing loans ​until March 2023. Also, starting June 30, 2023, HTM will be restored to 19.5 percent in a phased manner, said Das.