RBI Monetary Policy Committee Highlights: Reserve Bank of India’s bi-monthly Monetary Policy Committee (MPC) voted unanimously to keep both repo rates and reverse repo rates unchanged, RBI Governor Shaktikanta Das announced Thursday after conclusion of its three-day deliberations today. RBI said it maintains an accommodative stance and will continue with it as long as necessary for a “durable and broad-based recovery” citing concerns over inflation and COVID-19 omicron variant. In terms of forecast, RBI projects the GDP to grow at 7.8% for fiscal year 2022-23 while CPI (Consumer Price Index) inflation is projected at 4.5% for upcoming fiscal. “Overall taking into consideration the outlook for inflation and growth, in particular the comfort provided by 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,” Governor Das said. The repo rate has been left unchanged at 4% while the reverse repo rate is unchanged at 3.35%.
The MPC members were expected by some economists to go for a hike in the reverse repo rate which currently stands at 3.35%. With many countries having begun policy normalization and even the US Federal Reserve announcing a faster than expected rate hike cycle all eyes are on the RBI. The central bank had last revised the policy rate on May 22, 2020. Economists and analysts were predicting a hike in the reverse repo rate between 20-40 basis points. However, a change in the monetary policy committee’s accommodative stance is unlikely and a change in repo rate also seems less likely to happen. “We expect overall policy guidance from the RBI to remain markedly more dovish than its global peers, as the output gap in India is likely to stay negative for longer, while inflation should broadly trend lower through 2022,” said Rahul Bajoria, Managing Director & Chief India Economist, Barclays.
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RBI has been working on central bank digital currencies (CBDCs) from last one and a half to two years now, Deputy Governor T Rabi Shankar said. We will do pilot test of CBDCs this years going forward and will launch it this year as announced in Budget, he added.
RBI will be careful and cautious in rollout of CBDCs. Cyber security remains biggest risk, RBI Governor Shaktikanta Das.
Based on RBI's assessment, we don't think RBI is behind the curve based on our domestic conditions, RBI Governor Shaktikanta Das said.
RBI Deputy Governor Michael Patra said given the presence of liquidity overhang we also see that dampening volatility. Our actions have not caused any volatility and we don't see undue volatility in money markets, he added.
RBI's Shaktikanta Das says will take an action on reverse repo rates in a calibrated manner. We don't like suddenness and sudden surprises, he added at the press conference, after MPC announcement.
The inherent momentum of growth is positive and is picking up, RBI Governor Shaktikanta Das said at the presser. RBI's growth projections at 7.8% for 2022-23, are primarily due to base effects, he added.
RBI Governor Shaktikanta Das said our inflation projections are benchmarked to international crude oil prices and it is based on our projections of where oil price will be, considering both upside and downside projections. CPI inflation for the upcoming fiscal 2022-23 is projected to be at 4.5%.
RBI Governor Shaktikanta Das says central bank will spell out when it will start journey on neutral interest rates when it takes a decision on it. He has been speaking at the press conference after the MPC meeting briefing.
“The MPC expectedly kept the key rates unchanged unanimously and reiterated its accommodative stance both on rates and liquidity. However, Prof Jayanth Varma’s dissent on continuation of accommodative stance for foreseeable future continues to keep MPC in split state,” Emkay Financial's lead economist Madhavi Arora said. “The possible hike in fixed reverse repo was a close call and it seems the RBI gauged that markets need to be assuaged over material tightening of financial conditions ahead as global dynamics change and decided to stay put,” she added.
Market has responded positively to the policy as of now with banking stocks exhibiting strength, V K Vijayakumar, chief investment strategist at Geojit Financial Services said. However, the short to medium- term trend of the market is likely to be influenced by the inflation data in US expected late tonight, he added.
RBI has turned to rebalancing liquidity on a dynamic basis while maintaining adequate liquidity in support of its accommodative stance, the governor said. RBI will be rebalancing liquidity from overnight fixed rate reverse repo rate towards 14-day variable rate reverse repo rate (VRRRs).
“The RBI remained more concerned on growth versus inflation and thereby maintained all the policy rate unchanged. The monetary policy stance also remains accommodative. We think that the RBI had at least the space to do a symbolic 15 bps reverse repo hike so as to signal rate normalisation, commitment to be at the top of the inflationary situation and also keep the Indian monetary policy in alignment with the global trend. We expect the rate hike to start in the next MPC meeting. The stance of monetary policy, however, is likely to continue as accommodative,” said Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers
“Contrary to many central banks, RBI acts dovish and kept interest rates unchanged with an accommodative stance. There were expectations that RBI may hike the reverse repo rate and may change its stance to neutral from accommodative in tandem with hawkish global central banks amid rising inflation but RBI continued with its existing stance. RBI believes that inflation will peak out soon and there is a need for continuous support to the economy. Generally, it is considered positive for the market but it will be important to see how the market will read it because there could be a risk that RBI will remain behind the curve that may cause inflation in the future however the overall structure looks bullish for Indian market after a recent correction. Rate-sensitive sectors like infra, real estate, auto, and financial may continue to outperform,” said Parth Nyati, Founder, Tradingo.
CPI for the next fiscal year is projected at 4.5%. In the first quarter, inflation is expected to be at 4.9% and 5% in Q2. In Q3 inflation is expected to be at 4% and 4.2% in the last quarter.
“Inflation projections for 2021-22 retained at 5.3% with current quarter projections at 5.7% on account of unfavorable base effects that ease subsequently,” Das said.
Read GDP growth projected at 7.8% for 2022-23, said RBI Governor Das. He added that the economy will grow by 17.2% in the first quarter and by 7% in the second quarter. Q3 is expected to see 4.3% growth and 4.5% growth in Q4.
Increase in inflation in December was entirely due to unfavourable base effect despite month-on-month decline in prices.
Governor Shaktikanta Das said going forward positive impulses on quickening the pace of recovery emanate from robust export demand, accommodative monetary and liquidity conditions, and improving of credit offtake and continued push for capex in Union Budget 2022.
“MPC was of the view that continued policy support was warranted for durable and broad-based recovery,” RBI Governor Shaktikanta Das said.
The increase in inflation in December was entirely due to an unfavorable base effect, said RBI governor Das. He added that headline inflation is expected to reach its peak this quarter.
RBI governor says monetary policy committee (MPC) voted unanimously to keep repo rates unchanged at 4% and continue with accommodative stance as long as necessary. RBI governor Shaktikanta Das says reverse repo rates also unchanged.
RBI MPC voted unanimously to keep repo rate unchaged.
RBI Governor says India is poised to grow at fastest pace year-on-year among major economies, according to IMF projections.
India charting a different course of recovery than the world, Shaktikanta Das said. He added that India is recovering with sustained fiscal and monetary support helping India's economy emerge strong.
Pandemic holds the world economy hostage again, said RBI Guv. He added that contact intensive sectors are facing the heat with covid waves.
Reserve Bank of India governor Shaktikanta Das starts the address on monetary policy committee statement.
RBI governor will begin his address shortly.
Domestic equity market benchmarks BSE Sensex and Nifty 50 were trading in the positive territory on Thursday, ahead of RBI MPC meeting address. BSE Sensex was hovering near 58500, while Nifty 50 was just above 17500.
RBI Governor Shaktikanta Das will begin his bi-monthly MPC address shortly. Das is expected to announced the MPC's decision after three days of deliverations.
Reserve Bank of India has so far kept rates unchanged for 9 policy meetings. The central bank had last revised the policy rate on May 22, 2020.
“Given that on one hand uncertainty around the Covid variants continue and growth is still uneven, inflationary expectations remain high and global central banks are withdrawing easy monetary policy, against this backdrop, we expect the RBI to continue its path of policy normalization but, rather slowly,” said Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance.A
“Indian markets will be in focus today as the Reserve Bank of India will announce its verdict after a three-day meet on February 10 and it is widely expected to increase the reverse repo rate or the rate at which the central bank borrows short-term deposits from banks by at least 25 basis points,” said Mohit Nigam, Head – PMS, Hem Securities.
If the Reserve Bank of India maintains status quo once again this will be the tenth consecutive time that the central bank keeps the repo rate unchanged at 4%. The Central bank had last revised the policy rate on May 22, 2020, in response to COVID-19 pandemic. It has kept the interest rates unchanged to historic lows to boost the economic health amid aftermath of the pandemic.
In a research note Emkay Global said recent auction cancellations due to high GOI cash balance could help soothe market nerves, but a huge supply next fiscal will require the RBI’s invisible hand in a more visible fashion, implying return of a pre-committed GSAPs. This, however, will interfere with the RBI’s aim of liquidity normalization, balance sheet preservation and a possible change in stance and repo hike(s) ahead, starting with a fixed RR hike.
Reserve Bank of India will be under pressure to fast-track monetary policy normalisation in the ongoing MPC meeting with the US Federal Reserve announcing a faster than expected rate hike cycle and domestic bond yields soaring, experts said. Unlike the past, rate hikes will follow the tight conditions in the money market, NR Bhanumurthy, Vice Chancellor of Dr BR Ambedkar School of Economics University said. “Previously policy rates provided lead to money market interest rates. This time it’s the other way round, RBI might have to follow the market conditions,” he added. Read more
“Growth concerns amid spread of the Omicron variant and relatively benign inflation outturns provide the RBI with enough room to maintain its growth-supportive monetary policies. Still, given the RBI’s liquidity management actions, we expect a Reverse Repo rate hike of 20-25bp in February,” Rahul Bajoria, chief India economist at Barclays said.
Reserve Bank of India Governor Shaktikanta Das will begin his address at 10 AM today to announce the MPC's decisions. Following the release of policy statement, a joint press conference of MPC members is scheduled for 12 noon.
Even as the RBI may want to be cautious and gradual in its policy normalization, reversing some of the pandemic-related measures will need to start. We believe that the RBI should start normalizing the reverse repo rate by raising it 20 bps in the February policy.
