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Growth Oriented: RBI’s MPC retains rates, accommodative stance

Growth Oriented: RBI's MPC retains rates, accommodative stance

Mumbai, Feb 10 (SocialNews.XYZ) The Reserve Bank of India's Monetary Policy Committee (MPC) on Thursday retained key short-term lending rates during the sixth and final monetary policy review of FY22. Besides, the growth-oriented accommodative stance was also retained to give a push to economic activity.

The MPC of the central bank maintained the repo rate, or short-term lending rate, for commercial banks, at 4 per cent. Likewise, the reverse repo rate was kept unchanged at 3.35 per cent, and the marginal standing facility (MSF) rate and the 'Bank Rate' at 4.25 per cent.

 

In his policy statement post the Monetary Policy Committee's bi-monthly meeting, RBI Governor Shaktikanta Das said the MPC was of the view that continued policy support is warranted for a durable and broad-based recovery.

"Overall, taking into consideration the outlook for inflation and growth, in particular the comfort provided by the 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," he said.

On the Covid's ongoing third wave, he cited that it has led to "some loss of momentum in economic activity" which has been reflected in high frequency indicators. He also pointed out that demand for contact-intensive services is still muted.

"The MPC flagged the potential downside risks to economic activity from the highly contagious Omicron variant.... There is, however, some loss of momentum in economic activity as reflected in high frequency indicators such as purchasing managers' indices for both manufacturing and services, finished steel consumption and sales of tractors, two-wheelers and passenger vehicles."

Going forward, he said that positive impulses for quickening the pace of recovery emanate from buoyant 'Rabi' prospects, robust export demand, accommodative monetary and liquidity conditions, improving credit offtake, and the continued push on capital expenditure and infrastructure in the Union Budget 2022-23.

Notably, Das said that India's GDP is expected to grow at 7.8 per cent in FY2022-23.

"In India, real GDP growth at 9.2 per cent for 2021-22 takes it modestly above the level of GDP in 2019-20. Private consumption, the mainstay of domestic demand, continues to trail its pre-pandemic level," he said.

The government's thrust on capital expenditure and exports are expected to enhance productive capacity and strengthen aggregate demand, he said.

"This would also crowd in private investment. The conducive financial conditions engendered by the RBI's policy actions will provide impetus to investment activity."Furthermore, Das said that India's FY23 retail inflation is projected at 4.5 per cent."

The CPI reading for January 2022 is expected to move closer to the upper tolerance band, largely due to adverse base effects.

"The Governor pointed out that hardening of crude oil prices presents a major upside risk to the inflation outlook.

Moreover, the status quo in policy rates was welcomed by the investors and the S&P BSE Sensex and NSE Nifty50 rose during the day's trade.

Consequently, Sensex settled at 58,926.03 points, up 0.79 per cent or 460.06 points from the previous close, Nifty at 17,605.85 points, up 0.81 per cent or 142.05 points from the previous close.

"The tone of the policy review appeared sanguine on domestic inflation and cautious on growth, with a view to not sacrificing the latter in a futile attempt to control imported inflation," said Aditi Nayar, Chief Economist, ICRA.

According to Sunil Kumar Sinha, Principal Economist, India Ratings and Research: "RBI appears to be in no hurry to pursue the path of policy normalisation and gave indication that the policy rates are likely to remain unchanged in the near term."

In addition, Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research said: "It is clear that the central bank wants to hold on to the supportive monetary policy and augment the growth focussed budgetary initiatives of the government till the data points to a strong pick up in domestic consumption demand."

Source: IANS

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Growth Oriented: RBI's MPC retains rates, accommodative stance

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