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Last updated: 13 Dec, 2021  

RBI.9.Thmb.jpg RBI status quo

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Bikky Khosla | 13 Dec, 2021

The Reserve Bank of India last week maintained status quo on its key lending rates along with the growth-oriented accommodative stance during the penultimate monetary policy review of FY22. The repo rate - at which the RBI lends money to commercial banks – was retained at 4 percent. The reverse repo rate was also kept unchanged at 3.35 percent. These moves are on expected lines, on the backdrop of global scare due to the new Covid variant Omicron.

In its policy review, the central bank says that since the MPC’s meeting during October 6-8, 2021, surges of infections across geographies, emergence of the Omicron variant, the persistence of supply chain disruptions and elevated energy and commodity prices continue to weigh on global economic activity. It also mentions about slowing global merchandise trade, elevated freight rates and the global shortage of semiconductor chips, which could dampen future manufacturing output and trade.

While retaining the GDP growth target at 9.5 percent in FY22, the central bank also retains CPI inflation projection at 5.3 percent in 2021-22, adding that the inflation trajectory is likely to be in line with its earlier projections. It, however, points out that persistence of high core inflation since June 2020 is an area of policy concern in view of input cost pressures, though reduction of excise duty and VAT on petrol and diesel will bring about a durable reduction in inflation.

The status quo on rate seems logical on the background of repo rate cut by a total of 115 basis points since March 2020, followed by a 135 bps rate cuts since the beginning of 2019. The central bank said that overall economic recovery is gaining momentum, but yet it is cautiously of the view that the recovery is still not strong enough and supportive policy measures such as accommodative stance are required.

I invite your opinions.

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