India’s top bank keeps key rates intact

To protect the “nascent economic” recovery, the Reserve Bank of India retained its key short-term lending rates at the third monetary policy review of FY22.

The growth-oriented accommodative stance was also retained to give a push to economic activity despite high retail inflation levels.

RBI Governor Shaktikanta Das contended that any departure from the present pro-growth monetary policy stance might “kill the nascent and hesitant recovery” as he reiterated the RBI’s priority to “promote growth within the framework of financial stability”.  The Monetary Policy Committee (MPC) of the central bank unanimously voted to maintain 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.

It was widely expected that the MPC would hold rates and the accommodative stance.

Furthermore, the RBI retained the FY22 projection for real GDP growth at 9.5 per cent on the back of receding impact of Covid second wave as well as rising vaccinations.

According to Das, the economy is recovering from the setback from the Covid’s second wave.

He said that accelerated vaccination drive along with buoyant exports and monetary, as well as fiscal, support has aided recovery.

As per the RBI’s assessment, private and government consumption, and investment, coupled with demand, are on path of recovery.

Das cited the strong external demand as opportunity for India, and short term supply side shocks as the main drivers of inflation.

In terms of the RBI’s revised estimates, forecasts for FY22 raised inflation projection to 5.7 per cent from the earlier 5.1 per cent given the supply side overhang seen in the first quarter of the year.

Nevertheless, it said that the inflationary pressures are transitory against the backdrop of supply side constraints and a spurt in commodity prices.