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.