In the first monetary policy review of the financial year 2022-23, the Reserve Bank of India (RBI) on Friday kept key policy interest rates unchanged for the 11th time in a row and sharply raised inflation projection and lowered growth forecast due to disruptions caused by the Russia-Ukraine conflict.
The RBI's six-member Monetary Policy Committee (MPC) voted unanimously to keep the policy repo rate unchanged at 4 per cent. The repo rate is the interest rate at which the RBI lends short-term funds to banks.
The reverse repo rate, the interest rate at which the RBI borrows from banks, remains unchanged at 3.35 per cent. The marginal standing facility (MSF) rate and the Bank rate also remain unchanged at 4.25 per cent.
This is the 11th time in a row that the central bank has kept key policy interest rates unchanged.
The MPC also decided unanimously to remain accommodative while focussing on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth, RBI Governor Shaktikanta Das said in his monetary policy statement.
Citing the sharp increase in crude oil prices due to the Russia-Ukraine conflict, the RBI sharply revised upward the inflation forecast for the current financial year to 5.7 per cent from its earlier projection of 4.5 per cent announced in February.
Consumer Price Index (CPI) based inflation is projected to average 5.7 per cent in 2022-23. In the first quarter of the current financial year retail inflation is projected to remain at 6.3 per cent; in the second quarter 5.8 per cent; in the third quarter 5.4 per cent and in the fourth quarter 5.1 per cent.
While the inflation projection has been revised upward, the economic growth forecast has been sharply lowered.
The RBI said the GDP growth in the current financial year is expected to remain at 7.2 per cent. In the February policy review, the central bank had pegged the growth projection for the financial year 2022-23 at 7.8 per cent.
As per the RBI, the GDP is expected to expand by 16.2 per cent in the first quarter of the current financial year. The growth will come down to 6.2 per cent in the second quarter and further to 4.1 per cent in the third quarter and further down to 4 per cent in the fourth quarter of the financial year 2022-23.
These projections are based on assuming crude oil (Indian basket) at USD 100 per barrel during 2022-23.
However, the RBI Governor noted that inflation and growth projections are fraught with risk given the volatility in the international markets.
"Given the excessive volatility in global crude oil prices since late February and the extreme uncertainty over the evolving geopolitical tensions, any projection of growth and inflation is fraught with risk, and is largely contingent upon future oil and commodity price developments," Das said.
Explaining the rationale behind keeping the policy rate and monetary policy stance, the RBI Governor said, "the external developments during the past two months have led to the materialisation of downside risks to the domestic growth outlook and upside risks to inflation projections presented in the February MPC resolution."
"Inflation is now projected to be higher and growth lower than the assessment in February. Economic activity, although recovering, is barely above its pre-pandemic level. Against this backdrop, the MPC decided to retain the repo rate at 4 per cent. It also decided to remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth," he added.
( With inputs from ANI )
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