RBI Bi-monthly Monetary Policy Review February 2022 – Highlights and Key Takeaways

The six-member Monetary Policy Committee headed by Reserve Bank of India Governor Shaktikanta Das started deliberations on the bi-monthly policy review on Tuesday February 8, 2022. The meeting was originally scheduled to take place on 7-9 February 2022. However, it was rescheduled to 8-10 February after Maharashtra Government declared February 7 a public holiday to mourn the death of legendary singer Bharat Ratna Lata Mangeshkar.

The Monetary Policy Committee has kept the benchmark interest rate unchanged at 4 percent and decided to continue with its accommodative stance in the backdrop of elevated level of inflation as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.  It is the tenth consecutive time since the rate remains unchanged. The central bank had last revised the policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting interest rate to a historic low. India is charting a different course of recovery from rest of the world. India poised to grow at fastest pace year-on-year among major economies as per projections by IMF. Pandemic continues to hold world hostage, says Guv.This recovery is supported by large scale vaccination & sustained fiscal & monetary support, said RBI Governor in his MPC address.

Highlights of MPC Meet: 

• MPC has decided to keep benchmark repurchase (repo) rate at 4 per cent
• The reverse repo rate will continue to earn 3.35 per cent interest for banks for their deposits kept with RBI
• The marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.
• RBI retained its growth projection at 9.2 per cent and inflation at 5.3 per cent for the current financial  year
• E RUPI digital voucher cap raised from Rs 10,000 to Rs 1 lakh and multiple-use permitted
• Retail inflation rose to a five-month high of 5.59 per cent in December from 4.91 per cent in November
• VRR and VRRR of 14 day tenor – will operate as main liquidity management tool

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

The MPC has kept both the repo rate and reverse repo rate unchanged at 4 percent and 3.35 percent respectively. MPC panel continued with the  ‘accommodative’ stance in the backdrop of elevated level of inflation.

The MPC voted unanimously for keeping interest rate unchanged and decided to continue with its accommodative stance as long as necessary to support growth and keep inflation within the target.

The RBI projected GDP growth for FY23 at 7.8 percent. The central bank retained the growth projection for current financial year at 9.2 percent.

CPI inflation forecast for FY22 has been retained at 5.3 percent. It expected to moderate closer to 4.00 percent target in second half of FY23 and provide room for monetary policy to remain accommodative.

Retail inflation rose to a five-month high of 5.59 percent in December from 4.91 percent in November, mainly due to an uptick in food prices. MPC has been given the mandate to maintain annual inflation at 4 percent until March 31, 2026, with an upper tolerance of 6 percent and a lower tolerance of 2 percent.

There has been some loss of momentum in the economic activity due to Omicron. Considering the outlook for inflation and growth, uncertainty related to global spillovers and Omicron, there's a need for continued policy support is warranted for the economy.

Rupee has shown resilience in the face of global spillovers. Current account deficit (CAD) seen below 2 percent of FY22 GDP.RBI is committed to smooth conduct of the government borrowing program

The cap of e-vouchers has been proposed to be increased from Rs 10,000 to Rs 1 lakh.

Variable rate repo operations of varying tenors will henceforth be conducted as and when warranted. Second, variable rate repos and variable rate reverse repos of 14-day tenors will operate as the main liquidity management tool. Third, these operations will be aided by fine turning operations. Fourth, with effect from March 1, the fixed rate reverse repo and Marginal Standing Facility will only be available from 5:30-11:59PM on all days.

Increasing the NACH mandate limit from Rs 1 Cr to Rs 3 Cr for trade related settlement is proposed.

On Tap Liquidity window for healthcare is extended upto June 30,2022.

Limit for inflows under the Voluntary Retention Scheme hiked to Rs 2.5 lakh cr from Rs 1.5 lakh cr.

All members of the MPC – Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth R. Varma, Dr. Mridul K. Saggar, Dr. Michael Debabrata Patra and Shri Shaktikanta Das – unanimously voted to keep the policy repo rate unchanged at 4.0 per cent.

All members, namely, Dr. Shashanka Bhide, Dr. Ashima Goyal, Dr. Mridul K. Saggar, Dr. Michael Debabrata Patra and Shri Shaktikanta Das, except Prof. Jayanth R. Varma, voted to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward. Prof. Jayanth R. Varma expressed reservations on this part of the resolution.

The minutes of the MPC’s meeting will be published on February 24, 2022.

The next meeting of the MPC is scheduled during April 6-8, 2022.

Please click here to read the :Governor’s Statement: February 10, 2022

Please click here to read the : Monetary Policy Statement, 2021-22 Resolution of the Monetary Policy Committee (MPC) February 8-10, 2022

Source: rbi.org.in, Economic Times; Livemint, Money Control, Business Standard