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Home Economy

RBI Revises Its Stance to Less Accommodative to Revive, Sustain Growth and Contain Inflation

by Economy India
April 8, 2022
Reading Time: 2 mins read
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While the Reserve Bank of India’s six-member monetary policy committee (MPC) voted to leave the benchmark repo rate unchanged at 4% for the 11th-straight time, RBI now sees lower-than-forecast growth and higher inflation.

The MPC has voted unanimously to continue with an accommodative stance to continue supporting growth.

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The Marginal standing facility (MSF) rate & bank rate remain unchanged at 4.25%. The width of liquidity adjustment facilities, i.e. LAF corridor will be restored to 50 basis points – the position that prevailed before the pandemic.

The RBI today also introduced a standing deposit facility at 3.75%, aimed at liquidity management. With this, the RBI has restored the LAF corridor with SDF at the base at 3.75% and MSF at 4.25%. The Fixed Reverse Repo Rate has been kept at 3.35% and along with SDF will impart flexibility to RBI’s liquidity management, the governor said.

“RBI revises its stance to less accommodative to revive, sustain growth and contain inflation,” RBI Governor Shaktikanta Das said. “Global food prices have hardened significantly. Risk aversion towards assets of emerging market economies has led to large capital outflows and depreciating bias in their currencies,” he added.

Growth & inflation outlook

India’s GDP growth projection has been downgraded to 7.2% for FY23, from 7.8% forecasted in the previous meet. The RBI sees 16.2% real GDP growth in Q1FY23, 6.2% in Q2, 4.1% in Q3, and Q4 at 4%. The growth projections assume crude oil at $100 per barrel in the ongoing fiscal.

Governor Das announced that the inflation for the current fiscal is now projected at 5.7%, up from the 4.5% forecast in the February meeting. Q1FY23 inflation is now seen at 6.3%, Q2 at 5%, Q3 at 5.4%, and Q4 at 5.1%.

He said that given the volatility since February, any projection related to growth and inflation is fraught with risks and is contingent on future oil and commodity price developments.

Economic Activity

“Economic activity, although recovering, is barely above its pre-pandemic level. Against this backdrop, the MPC decided to retain repo rate at 4% and remain accommodative,” Das said. “It (MPC) also decided to remain accommodative while focusing on withdrawal of accommodation to ensure inflation remains within the target while supporting growth,” he added.

The RBI has cut its key lending rate, i.e, the repo rate by 115 bps since March 2020 to support the economy in the face of economic fallout from the pandemic. It last cut its policy rate on May 22, 2020, in an off-policy cycle when COVID-19 posed an unprecedented challenge to the economy.

(Economy India)

Tags: RBIShaktikanta Das
Economy India

Economy India

Economy India is one of the largest media on the Indian economy. It provides updates on economy, business and corporates and allied affairs of the Indian economy. It features news, views, interviews, articles on various subject matters related to the economy and business world.

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