RBI keeps key policy rates unchanged; retains GDP projection at 9.5%: Key takeaways

NEW DELHI: The Reserve Bank of India's (RBI) monetary policy committee (MPC) on Wednesday unanimously decided to keep repo rate unchanged at 4 per cent for the ninth consecutive time and continued with the accommodative stance.
Repo rate is the rate at which the RBI lends to banks, while reverse repo rate is the rate at which it borrows from banks.
The six-member MPC, headed by RBI governor Shaktikanta Das, met for three days from December 6.
The central bank had last revised the policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting interest rate to a historic low.

Here are the key takeaways from the meet:
Policy rates unchanged for 9th time
* The RBI maintained status quo for 9th consecutive time in the backdrop of concerns over the emergence of the new coronavirus variant Omicron.
* The reverse repo rate also remained unchanged at 3.35 per cent, while the marginal standing facility (MSF) stands at 4.25 per cent.
* MPC voted unanimously for keeping interest rate unchanged and decided to continue with its accommodative stance as long as necessary to support growth and keep inflation within the target.
GDP projection retained at 9.5%
* RBI retained its growth projection at 9.5 per cent for the current fiscal despite concerns over Omicron.
* Q3 GDP has been projected at 6.6 per cent, for Q4 it has been pegged at 6 per cent.
* Real GDP growth is projected at 17.2 per cent for Q1 of 2022-23 and at 7.8 per cent for Q2 of 2022-23.

CPI inflation projected at 5.3%
* CPI inflation is projected at 5.3 per cent in 2021-22. This consists of 5.1 per cent in Q3, and 5.7 per cent in Q4 with risk broadly balanced.
* Das said that price pressures may persist in the immediate term. Vegetable prices are expected to see a seasonal correction with winter arrivals in view of bright prospects for Rabi crops.

* Das said RBI's monetary policy stance is primarily attuned to the evolving domestic inflation and growth dynamics.
* Cost-push pressures from high industrial raw material prices, transportation costs, and global logistics and supply chain bottlenecks continue to impinge on core inflation, he added.
'Reduction in VAT, excise duty on fuel should help'
* The RBI governor said that recent reductions in excise duty & state VAT on petrol and diesel should support consumption demand by increasing purchasing power.
* Govt consumption is also picking up from August, providing support to aggregate demand, he added.
Launch of UPI-based mobile products
* The central bank will also launch unified payments interface (UPI) based feature phone products to enhance limit for Gilts Retail, IPOs from Rs 2 lakh to Rs 5 lakh.
'Recovery gaining traction, but Omicron clouded economic outlook'
* The governor also stressed that the recovery that had been interrupted by the second wave of the pandemic is regaining traction but it is not yet strong enough to be self-sustaining and durable.
* He said that downside risks to the outlook have risen with the emergence of Omicron and renewed surges of Covid infections in a number of countries.
* Notwithstanding some recent corrections, headwinds continue to be posed by elevated international energy and commodity prices, potential volatility in global financial markets due to a faster normalisation of monetary policy in advanced economies, and prolonged global supply bottlenecks.
Banks can infuse capital in overseas branches without permission
* The RBI allowed banks to infuse capital in their overseas branches as well as repatriate profits without seeking its prior approval, subject to fulfilling of certain regulatory capital requirements.
* At present, banks incorporated in India can infuse capital in their overseas branches and subsidiaries, retain profits in these centres and repatriate/ transfer the profits with prior approval of the RBI.
* "With a view to providing operational flexibility to banks, it has been decided that banks need not seek prior approval of the RBI if they meet the regulatory capital requirements," Shaktikanta Das said while announcing the bi-monthly monetary policy.
Experts welcome RBI decision
Welcoming the MPC's decision to hold key policy rates, chairman & managing director of Knight Frank India Shishir Baijal said, "The low interest regime and adequate liquidity into the system is critical to further strengthen the domestic market. Even while RBI has announced measures to further mop up excess liquidity, it has also convinced that adequate liquidity will be maintained as required. We hope, the policy will help maintain growth momentum even in wake of the new variant Omicron."
Shraddha Kedia-Agarwal, director at Transcon Developers said that RBI maintaining status quo on key policy rates was expected given the inflationary concerns in recent months.
"The decision will help to sustain liquidity for some period amid the rising fear due to the new Omicron variant. The low interest rates for the last few months has already given a boost to the real estate sector upticking the demand in the last few quarters and enhancing the confidence of the homebuyers," she added.
Stating that low interest rates have been crucial for demand revival in real estate sector, Pritam Chivukula, co-founder & director at Tridhaatu Realty and hon. secretary, CREDAI MCHI said: "The buyers are already coming back to the market and we feel that this might be the last opportunity for the homebuyers to purchase property with low interest rates before RBI decides to hike it in their next policy announcement. Also, to keep the prices down on the account of rise in raw materials prices will be a huge challenge in front of the developers."