RBI Monetary Policy 2022 April: MPC meeting outcome, highlights, review summary - What all Governor Shaktikanta Das announced
This is the 11th time in a row that the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das has maintained the status quo.
RBI Monetary Policy 2022 April: In a major development, the Reserve Bank of India (RBI) on Friday kept the benchmark interest rate unchanged at 4 per cent and going forward decided to withdraw its accommodative stance to ensure that inflation remains within the target level.
This is the 11th time in a row that the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das has maintained the status quo. The central bank had last revised its policy repo rate or the short-term lending rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting the interest rate to a historic low.
The MPC, based on its assessment of the macroeconomic situation and outlook, voted unanimously to keep the policy repurchase (repo) rate unchanged at 4 per cent, Das said while announcing the bi-monthly monetary policy review.
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The committee also decided unanimously to remain accommodative while focusing on withdrawal of its current stance to ensure that inflation remains within the target band going forward, he said.
Consequently, the reverse repo rate will continue to earn 3.35 per cent interest for banks for their deposits kept with the RBI.
Das further said the marginal standing facility, MSF rate and bank rate, remain unchanged at 4.25 per cent.
The RBI slashed the growth projection for the current fiscal to 7.2 per cent from 7.8 per cent earlier; while raising the inflation forecast to 5.7 per cent from 4.5 per cent.
The MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2026, with an upper tolerance of 6 per cent and a lower tolerance level of 2 per cent.
The bi-monthly policy comes against the backdrop of the Budget wherein a nominal gross GDP of 11.1 per cent has been estimated for 2022-23.
The government expects this growth to be fuelled by a massive capital spending programme outlined in the Budget with a view to crowd-in private investment by reinvigorating economic activities and creating demand.
Finance Minister Nirmala Sitharaman raised capital expenditure (capex) by 35.4 per cent for the financial year 2022-23 to Rs 7.5 lakh crore to continue the public investment-led recovery of the pandemic-battered economy. The capex in the current financial year is pegged at Rs 5.5 lakh crore.
The spending on building multi-modal logistics parks, metro systems, highways, and trains is expected to create demand for the private sector as all the projects are to be implemented through contractors.
RBI Monetary Policy 2022 April: MPC meeting outcome, highlights, review summary - What Governor Shaktikanta Das announced
WATCH VIDEO: Monetary Policy statement by Shaktikanta Das, Governor, Reserve Bank of India
Monetary Policy statement by Shri Shaktikanta Das, Governor, Reserve Bank of India https://t.co/8w892tXAnX
— ReserveBankOfIndia (@RBI) April 8, 2022
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-Inflation is expected to rise to 5.7 pc from 4.5 pc projected earlier for FY23: Das
-RBI will continue to adopt nuanced, nimble approach to liquidity management while ensuring adequate liquidity in system: Das
-RBI will engage in gradual, multi-year withdrawal of Rs 8.5 lakh crore excess liquidity in system: Governor Das
-RBI to maintain orderly financial condition in market and will take steps to contain impact of global spillovers: Das
-RBI to review customer services; cardless cash withdrawal from ATMs extended to all banks using UPI: Das
-RBI says it is not hostage to any rule book, will use all available tools to defend Indian economy
Industry Reactions to RBI MPC
Jyoti Prakash Gadia, Managing Director, Resurgent India
"Despite facing huge challenges of inflation and uncertainties, the RBI has exhibited a note of faith and optimism by keeping the policy repo rate unchanged.
To deal with strenuous emerging scenarios,the RBI has rightly chosen to have a less accommodative stance with emphasis on a closer and continuous monitoring of inflation, which is expected to maintain stability while supporting resilience and growth.
Recognizing the existence of surplus liquidity in the system, the RBI's decision to suitably tweak the reverse repo rate and continue the tools and mechanism of VRRR and VRR to absorb liquidity are the right steps on expected lines.
To continue the supportive regulatory measures, for individual housing loans and HTM classification of bond portfolios of Banks, is also a welcome step that will augur well for the housing sector and provide stability to the financial sector."
George Alexander Muthoot, Managing Director at Muthoot Finance.
Y. Viswanatha Gowd, MD & CEO of LIC Housing Finance
“With visible signs of normalization coming back and the Reserve Bank of India (RBI) consecutively keeping the repo rate unchanged, there will be the sustenance of demand for the housing loan market. The announcement regarding the rationalization of risk weights for individual housing loans which will be extended till March 31, 2023, is great news for lenders and will ensure credit flow to the sector. The policy support from the government continues to provide thrust and we expect FY23 to witness an inflow of homebuyers and increased construction activity as the market sentiments maintain a positive trajectory.”
Shanti Lal Jain, MD & CEO of Indian Bank
“By maintaining its accommodative stance and unchanged policy rates, RBI once again indicated that economic growth is its primary objective. RBI has brought in several measures to manage the liquidity in the system and keep reigning inflation under control while sustaining the economic growth.
Announcement of Standing Deposit Facility (SDF) with floor at 25 bps below Repo rate (presently 3.75%) for absorbing the liquidity and ensuring financial stability is a welcome move.
Extending applicability of Risk Weight guidelines of individual housing loans till Mar’23, enhanced limits under HTM category from 22% to 23% in SLR holdings would help the Banks in improving their credit flow to housing segment and for effective management of their liquidity, respectively.
The proposal to make available Cardless Cash withdrawal facility across all the Banks and ATM networks using UPI will give further fillip to the digital push.
In this policy, RBI has brought in several measures to achieve the twin objectives of economic growth and inflation control.”
Mohit Ralhan, Managing Partner at TIW Capital Group
“The merger of HDFC Twins has been expected for a long time but it took market participants by surprise today resulting in a significant increase in the share price of both companies as soon as the market opened. This merger has created a financial behemoth, which is still expected to grow at 20%+ rates and may create better profitability with cost synergies. This is also good news for customers with consolidation of services under one entity. RBI has been tightening up the regulatory framework for NBFCs and therefore the pros of keeping Bank and NBFCs as separate entities were diminishing. It looks like an excellent move benefitting all stakeholders which was also quite successfully kept under wraps till the actual announcement.”
Ram Raheja, Director at S Raheja Realty
“RBI’s move to keep repo rate and reverse repo rate unchanged contain inflation and maintain liquidity will help in keeping the sentiment optimistic. For the real estate sector, the pandemic followed by the current global political crisis is a silver lining. Being a tangible asset and safe haven investment, people will continue to divert their funds to real estate. Residential real estate will witness a further impetus due to overall uncertainty leading people to return to focus on basic requirements like spacious living spaces. Investors will be closely watching the geopolitical conditions to further estimate growth and evaluate investment avenues.”
Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE and Chairman, CII Northern Region
“Given the global headwinds, we welcome the RBI’s continuation of accommodative stance as well as its decision to maintain the repo rate at 4% as it will ensure liquidity in the country which will further pump-up investor sentiments. The continuation of the current repo rate regime would ensure that home loan rates remain low, leading to continued buyer interest in the residential sector. This would come as a breather for developers who are facing rising construction costs.”
Raghvendra Nath, Managing Director, Ladderup Wealth Management
“Lower growth forecast, raising inflation forecast and a spike in commodity prices due to the on-going geopolitical unrest, does not come as a surprise. In order to maintain current growth environment, RBI has continued with an accommodative stance. However, with a caveat, that it might withdraw its accommodative stance to ensure inflation remains within the target level. If RBI follows the path of Western Central banks and raises rates, then the existing capex plans in pipeline might be impacted.”
Shishir Baijal, Chairman & Managing Director at Knight Frank India.
WELCOME RBI’S STANCE TO MAINTAIN REPO DESPITE PRESSURES
Despite the disruptions from geo- political challenges as well as inflationary pressures, the RBI recognises the need to maintain economic growth momentum. We welcome the RBI’s continued accommodative stance and status quo on REPO rate. For the real estate sector, low interest rates for a long period of time has served as a key catalyst for the resurgence of demand. The status quo on REPO rates will help maintain the current demand levels as interest rate for both homebuyers and developers are likely to be maintained by financial institutions.
Madan Sabnavis, Chief Economist, Bank of Baroda
“The credit policy has surprised the markets with aggressive changes in projections for both GDP and inflation. For GDP growth it is 7.2% (Bank of Baroda: 7.4-7.5%) while inflation has been increased to 5.7% (Bank of Baroda: 5.5-6%). There is a clear hint that the accommodative stance though retained will change as there will be a gradual withdrawal of liquidity keeping in mind the trends in inflation. The interesting introduction of the SDF notwithstanding the high level of bonds held by RBI does indicate that the overnight reverse repo would no longer be attractive as the SDF gives higher return. These are clear indications of the repo rate being increased during the course of the year and we do expect at least 50 bps increase this year. The markets have already reacted with the 10-year bond going up past 7% and we expect the rate to go up to 7.25% this year.”
DRE. Reddy, CEO and Managing Partner at CRCL LLP
RBI’s accommodative stance is a welcome move to revive and sustain growth. While the Indian economy is steadily reviving from pandemic led contraction, recent geo-political tensions has led to increase in price of the several commodities such as oil and natural gas, wheat and corn, edible oil, fertilizer, milk, chicken, poultry. The ongoing conflicts has brought in risk of slow growth and higher inflation. Given the scenario of increasing food and crude oil prices, we may see prolonged supply disruptions which will further harden food prices globally. Sharp increase in international prices implies increase in rates across manufacturing, agriculture and services.
Nish Bhatt, Founder & CEO, Millwood Kane International
“ The current RBI policy did not have any surprises, it kept rates unchanged for the 11th straight policy. But it has clearly laid out the path to policy unwinding. The focus from now on will be to withdraw the accommodative policy stance to keep inflation in check. Today's announcement clearly indicates the end of easy monetary policy by RBI, the same reflected well on the 10-Year benchmark yield which hit a multi-year high.
The unwinding of liquidity will create some turbulence, and the likely reason for RBI to lower the growth rate projection for FY23 to 7.2%, inflation aim hiked to 5.7% from 4.5% earlier. The clear aim of the central banks worldwide is to control inflation, unwind easy liquidity and focus on slow and steady growth.”
Honeyy Katiyal, Founder-Investors Clinic
"The central bank's outlook on inflation and growth is being overtaken by events, notably the war in Ukraine, according to a growing chorus of Indian monetary policy officials. This is signifying a change of course. Keeping the stance on rates is a supportive move for the industry. The increase in rates was expected due to high inflation. Housing sector activity will keep the same pace, which is good news for developers. This balancing act was essential, and RBI has been maintaining the same for recent quarters by holding rates steady. In real estate, the unchanged rates have aided in boosting the sector, which relies heavily on government efforts and subsidies."