The Reserve Bank of India (RBI)’s Monetary Policy Committee on December 8 decided to keep the benchmark report and reverse repo rates unchanged as it thought about uncertainty brought by the Omicron variant and rising input cost pressures.
The repo rate was unchanged at 4 percent, five members voted to continue with accommodative stance while Jayanth R Varma again voted against for the third time. The repo reverse rate remains unchanged at 3.35 percent.
The MPC in its resolution though it was appropriate to wait for growth signals to become solidly entrenched while remaining watchful on inflation dynamics.
RBI Governor, Shaktikanta Das said, we need to be persevering, patient and persistent in our efforts. We also need to be aware, alert and agile to the new realities confronting us. Our efforts over the past one year and nine months have given us the confidence and a head-start to face the challenges that lie ahead, he added.
On Growth, the Indian economy grew by 20.1 percent while in the second quarter at 8.4 percent in this financial year. The second wave had interrupted the gaining traction but recovery is not yet strong enough to be self-sustaining and durable. Further the recover in domestic economic activity is turning increasingly broad based, with the expanding vaccination coverage, and decline in fresh Covid cases.
The MPC expects the projection for real GDP growth is retained at 9.5 percent in FY22 consisting of 6.6 percent in Q3 and 6 percent in Q4FY22. Real GDP growth is projected at 17.2 percent for Q1FY23 and 7.8 percent for Q2FY23.
On inflation outlook, Das said, inflation, while currently within India’s comfort zone of 4 (+/-2)%, is expected to inch higher as a positive base effect wanes. Persistence of high core inflation since June 2020 is an area of policy concern, Das said.
Governor highlighted that cost push pressures from high industrial raw material prices, transportation costs, and global logistics and supply chain issues continue to impinge on core inflation.
On liquidity, the central bank will continue to manage liquidity in a manner which entails economic recovery and financial stability. RBI will continue to use variable rate reverse repo operations to absorb funds, and 14 day VRRRs will remain the preferred duration to absorb liquidity even though the amount for auction has been raised.
