RBI keeps rates, cuts GDP growth forecast

The Reserve Bank of India (RBI) on Friday kept borrowing costs unchanged at a record low for the 11th time in a row in a bid to continue supporting economic growth despite inflation edging higher in the aftermath of Russia’s war in Ukraine.

RBI’s six-member Monetary Policy Committee voted to hold the benchmark repurchase or the repo rate at 4 per cent, Governor Shaktikanta Das said. The panel decided to stick to an accommodative stance “while focussing on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth”.

This essentially means that the RBI is providing clear signals on the exit from accommodative monetary policy in the near future while retaining the accommodative stance for now along with the status quo on the repo rate. Das said the priority for the last three years was growth followed by inflation and now it has been reversed.

As it now anticipates a much faster rise in inflation than earlier - the inflation forecast has been raised to 5.7 per cent for the fiscal that started on April 1, up from its 4.5 per cent estimate in February. The RBI also lowered the economic growth forecast to 7.2 per cent for the current 2022-23 fiscal from the previous outlook of 7.8 per cent.

This compares to real GDP growth of 8.9 per cent in 2021-22. To balance the inflation growth dynamics the RBI also stated that it will focus on withdrawal of accommodation in a way that inflation/inflationary expectation are anchored without hurting growth.

This is an indication that the accommodative policy stance of RBI may undergo a change in the near term if the situation warrants. Das said the global economy is seeing “tectonic shifts” from the war and extreme volatility in commodity and financial markets.

“Caught in the crosscurrent of multiple headwinds, our approach needs to be cautious but proactive in mitigating the adverse impact on India’s growth, inflation and financial conditions,” he said. Inflation has held above the targeted 6 per cent levels so far this year, casting doubts on the RBI’s strategy of keeping interest rates low to bolster growth.

The geopolitical scenario on the global front and other challenges have led the RBI to lower its growth forecast but the Indian economy appears to be well placed to withstand the shock supported by its forex reserves and stable financial sector. governor said global crude oil prices remain volatile at elevated levels while food, as well as metal and other commodity prices, have also hardened significantly.

Private consumption and fixed investment - key drivers of domestic demand - however, remain subdued. “Escalating geopolitical tensions have cast a shadow on our economic outlook,” he said. “Sharp increase in domestic pump prices (of petrol and diesel) could trigger price pressures.”

Among other measures announced included a discussion paper on climate risk and sustainable finance, a committee to examine and review the current state of customer service in the RBI regulated entities, extending card-less cash withdrawal through ATMs across all banks, and rationalisation of the net worth requirement for operating units on the interoperable platform for bill payments Bharat Bill Payment System. PTI