RBI Monetary Policy: Key takeaways from Governor Shaktikanta Das' address

RBI chief Shaktikanta Das gave the monetary policy statement.

The Reserve Bank of India's Monetary Policy Committee (MPC) on April 8 kept the key lending rate steady, lowered the growth forecast for FY23 and raised inflation projection in its bi-monthly policy review.

The MPC kept the lending repo rate at 4 percent and the key borrowing rate reverse repo rate at 3.35 percent, even as it signalled tightening of ultra liquidity in its first policy meeting of FY23.

Here are the takeaways from Reserve Bank of India Governor Shaktikanta Das' speech:

>> The repo rate has been left unchanged at 4 percent so has the reverse repo rate to 3.35 percent. The panel decided to continue with the so-called “accommodative” stance in the backdrop of elevated level of inflation and heightening of geo-political tensions.

“MPC voted unanimously to leave the repo rate unchanged at 4 percent and to keep stance accommodative,” Das said.

>> The rate-setting panel has insisted on gradual, calibrated withdrawal of liquidity over multi-year time frame, in a non-disruptive manner beginning this year.

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>> Inflation is now projected to be higher and growth lower than February's expectations. The RBI lowered the projected GDP growth for FY23 to 7.2 percent from 7.8 percent in the last meeting. GDP growth seen at 16.2 percent in April-June 2022, 6.2 percent in July-September, 4.1 percent in October-December and at 4 percent in January-March 2023.

CPI inflation is seen averaging higher at 5.7 percent in FY23 compared to 4.5 percent projected earlier. It is projected at 6.3 percent in April-June quarter, 5.8 percent in July-September, 5.4 percent in October-December and 5.1 percent in January-March 2023.

>> Crude oil price seen at $100 a barrel. The revised assumption of the crude oil price for making inflation and growth forecasts is sharply higher than the previous one.

Spike in crude oil since February-end poses substantial risk to inflation. The projection of inflation is fraught with risk and contingent to global crude prices.

“Projection of global inflation ratcheted up risks of sizeable impact across geographies in global production. Cost pressure and supply chain disruptions are likely to linger on,” Das said

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>> The central bank has decided to restore liquidity adjustment facility (LAF) corridor to 50 basis point, seen as a first step to move away from the ultra loose monetary policy adopted during the COVID-19 pandemic. MSF Rate and Bank Rate remain unchanged at 4.25 percent.

>> The central bank has introduced Standing Deposit Facility (SDF), which will form the floor of the Liquidity Adjustment Facility corridor.

Das said the normalisation of LAF corridor should not come as a suprise to market participants. According to him, the financial markets were prepared for the LAF corridor over the last several months.

SDF is being introduced to provide symmetry to operating framework of monetary policy and will have 3.75 percent interest rate. Access to SDF, MSF will be at the discretion of the banks.

>> The RBI expects the current account deficit to stay at sustainable levels during the current financial year, which it said can be financed with normal capital flows.