RBI Monetary Policy highlights: Key lending rates unchanged; FY23 GDP growth projected at 7.8%; retail inflation at 4.5%

The Reserve Bank of India (RBI) on Thursday pegged the economic growth rate for 2022-23 at 7.8 percent, lower than 8-8.5 percent projected by the Finance Ministry in the recent Economic Survey.

Unveiling the bi-monthly policy, RBI Governor Shaktikanta Das said the central bank has decided to keep the repo rate and reverse repo rate unchanged at 4 percent and 3.35 percent.

RBI has projected retail inflation at 5.3 percent for the current fiscal and 4.5 percent for FY23. Inflation will peak in the current quarter within the tolerance band and will moderate in the second half of next fiscal, Das said.

--MPC votes unanimously to leave repo rate unchanged at 4 percent

--MPC votes 5:1 to keep stance accommodative

--MPC decided to continue with accommodative stance “as long as necessary to revive and sustain growth on a durable basis” while ensuring inflation remains within target

--RBI leaves reverse repo rate unchanged at 3.35 percent

--“Taking into consideration the outlook for inflation and growth, in particular the comfort provided by the improving inflation outlook, the uncertainties related to Omicron and global spillovers, the MPC was of the view that continued policy support is warranted for a durable and broad-based recovery.”

--FY22 CPI inflation forecast left unchanged at 5.3 percent, Q4 FY22 forecast unchanged at 5.7 percent

--CPI forecast for FY23 at 4.5 percent

Q1FY23 seen at 4.9 percent vs 5 percent projected earlier

Q2FY23 seen at 5 percent, unchanged from previous forecast

Q3FY23 CPI inflation seen at 4 percent

Q4FY23 CPI inflation seen at 4.2 percent

--Consumer price inflation edged higher since last MPC meeting, but largely along anticipated lines

--Headline inflation expected to peak in Q4 FY22 within tolerance band

--Headline inflation is expected to moderate closer to target in H2 FY23 providing room for monetary policy to remain accommodative

--FY23 real GDP growth seen at 7.8 percent with:

Q1: 17.2 percent

Q2: 7 percent

Q3: 4.3 percent

Q4: 4.5 percent

--See some loss of momentum of near-term growth while global factors are turning adverse

--Looking ahead, domestic growth drivers are gradually improving

--Logical to restore revised liquidity management framework in order to make it more flexible and agile

1. Variable rate repo operations of varying tenors will be conducted as and when warranted by evolving liquidity and financial conditions within CRR maintenance cycle

2. Variable rate repos (VRRs) and variable rate reverse repos (VRRRs) of 14-day tenor will operate as main liquidity management tool

3. Main operations will be supported by fine-tuning operations to tide over any unanticipated liquidity changes

4. W.e.f March 1, 2022, Fixed Rate Reverse Repo & MSF operations will be available during 5.30 pm to 11.59 pm daily as before Covid

--Extension of Term Liquidity Facility of Rs 50,000 crore to Emergency Health --Services up to June 30, 2022 from March 31, 2022 earlier

--Extension of On-tap Liquidity Window of Rs 15,000 crore for Contact-intensive Sectors up to June 30, 2022 from March 31, 2022 earlier

--Voluntary Retention Route limit enhanced by Rs 1 lakh crore to Rs 2.5 lakh crore from Rs 1.5 lakh crore earlier

--Banks permitted to deal in offshore Foreign Currency Settled Rupee Derivatives Market

--Enhancement of the cap under e-RUPI (Prepaid digital Vouchers using UPI) to Rs 1 lakh per voucher

--Increase the NACH mandate limit to Rs 3 crore for TReDS settlements