Mumbai, 08 April 2022

The Six Member Monetary Policy Committee (MPC) of Reserve Bank of India has unanimously decided to keep the key rates unchanged in its first Monetary Policy announcement of FY 2022-23.  The  key Repo Rate remains unchanged at 4 per cent for the 11^th consecutive period.  Reverse Repo Rate is retained at 3.35%

The MPC also voted unanimously to continue with an ‘accommodative stance’ to support growth.  RBI has been on an accommodative stance for the last two years to support economy reviving after the Covid pandemic. However, addressing the post Monetary Policy press conference, RBI Governor Shaktikanta Das said that  controlling inflation has now taken precedence over growth, “In the sequence of priorities, we have now put inflation before growth.  For last three years growth was ahead of inflation, but now we have revised it in view prevailing conditions”.  Accordingly, RBI would be focusing on withdrawal of accommodative stance keeping an eye on growing inflation. 

RBI has now projected inflation to be 5.7% during 2022-23.  Quarter wise inflation projection is as under.

Q1 - 6.3%,

Q2 - 5.0%

Q3 - 5.4%

Q4 - 5.1%

The Governor in his statement observed that “Indian economy is steadily reviving from Pandemic-induced contractions”, he said however expressing concern over the prevailing war situations that could potentially impede economic recovery of India. “Spike in international crude oil prices since Feb end pose substantial risks to inflation”.

Shri Das however reassured that even though the conflict in Europe has the potential to impact on India’s growth, the strong buffers built over the past few years combined with the large foreign exchange reserves will help the economy withstand the current scenario. The Governor expressed confidence over the external sector indicators that are positively supporting the Forex Reserves. “Forex reserves stand at US$ 606.5 billion as on 01^st April 2022.”

Meanwhile, the RBI  has lowered the GDP growth projection to 7.2% during FY 2022-23.  Quarter wise growth projection is as follows.

Q1 - 16.2%

Q2 - 6.2%

Q3 - 4.1%

Q4 - 4.0%

Other Highlights of the April – May  Monetary Policy

Liquidity

Width of Liquidity Adjustment Facility to be restored to 50 basis points, the position that prevailed before the pandemic

Standing Deposit Facility rate will be 25 basis points below policy rate.

Variable Rate Reverse Repo Auctions to absorb liquidity and Variable Rate Repo Auctions to meet transient liquidity shortages and offset mismatches will be continued

Extraordinary liquidity measures during Pandemic, and other liquidity injections, have left liquidity overhang of about Rs. 8.5 lakh cr. RBI to withdraw this liquidity in gradual, calibrated manner, over multi year timeframe beginning this year, in a non-disruptive manner

Market Timings:

Opening time of financial markets regulated by RBI to be restored to pre-pandemic timing of 9 AM with effect from April 18. Closing time remains same as that at present

Marginal Standing Facility (MSF) and Standing Deposit Facility (SDF) will be available from 5.30 PM to 11.59 PM on all days of the week, throughout the year, irrespective of holidays or Saturdays or Sundays

Additional Measures:

Housing Loans - Risk weights for individual housing loans rationalized in Oct 2020 by linking with loan-to-value ratios for all new housing loans sanctioned up to 31^st  March 2022. Applicability of these guidelines has been extended till 31^st March '23, to facilitate higher credit flow for individual housing loan

Held To Maturity (HTM) limits to be restored from 23% to 19.5% in phased manner, from quarter ending 30 June 2023

Climate - RBI to publish discussion paper on climate risk and sustainable finance for feedback

Customer Service - Committee to be constituted to examine and review current state of customer service in RBI regulated entities; to suggest measures to improve customer service regulations

Cardless cash withdrawals to be made available across all banks and ATM networks using UPI, will help ease of transactions and prevent frauds

Bharat Bill Pay: To encourage participation of non-bank Bharat Bill Payment Operating Units, their net worth requirement to be reduced from Rs. 100 crore to Rs. 25 crore.

Cyber Security - Guidelines on Cyber Resilience and Payment Security Controls for Payment System Operators to be issued

RBI Governor’s Statement can be accessed here

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