RBI’s Bi-Monthly Monetary Policy 8th April 2022 – Key Takeaways and Highlights

The Governor of the Reserve Bank of India (RBI) on Friday announced the first Monetary Policy for the year 2022-23. For the 11th time, the central bank kept the repo rate unchanged at 4 per cent. The policy panel slashed the GDP growth forecast from 7.8 per cent to 7.2 per cent and hiked the inflation forecast at 5.7 per cent for the fiscal 2022-23. 

The RBI Governor said that the bank is ready to use every tool at its disposal to protect India from global volatility due to the ongoing Russia Ukraine War.

Shaktikanta Das lists out seven points in RBI's policy

There are seven things which we have done in this policy announcement, RBI Governor Shaktikanta Das says. 

— Revised inflation due to war induced factors and revised growth projections. 

— In sequence of priorities have put inflation before growth. 

— Stance continues to be accomodative while focussing on withdrawal of the accomodation which has been there for more than two years. 

— LAF corridor has been normalised to 50 bps. 

— SDF has been introduced and will be bottom of the corridor. 

— Announced that liquidity withdrawal will be done over a multi-year timeframe. 

— Situation is dynamic and fast-changing and all our actions will be tailored accordingly.

These are the Highlights & Key takeaways from the MPC meeting:-

  1. Repo Rate has been kept unchanged for the 11th time in a row at 4 per cent

  2. Bank rate has also been kept unchanged at 4.25 per cent

  3. Real GDP projection for 2022-23 has been lowered to 7.2 per cent from 7.8 per cent

  4. Inflation target for 2022-23 has been set at 5.7 per cent, with an assumption that oil prices will be $100 per barrel.

  5. To promote Digital India, Cardless withdrawal will be allowed through all ATMs and Banks across the country via UPI

  6. According to RBI Governor Das,  Current account deficit (CAD) at sustainable levels and forex reserves at $606.5 Billion as of April 1,2022, which are further bolstered by the net forward assets of the RBI.

  7. Marginal Standing Facility (MSF)  at 4.25 per cent and Reverse Repo Rate unchanged at 3.35 per cent

  8. Stance continues to be accomodative while focussing on withdrawal of the accomodation which has been there for more than two years. 

  9. RBI to issue guidelines for cybersecurity to all payment system operators

  10. RBI to restore LAF corridor to 50 bps, as it was at pre-Covid level

  11. RBI introduced Standing Deposit Facility to absorb liquidity

  12.  SDF, MSF will be available from 5:30 pm till midnight all days of the week

  13. Additional Measures-

    1. Individual Housing Loans – Rationalisation of Risk Weights - The risk weights for individual housing loans were rationalised in October 2020 by linking them only with loan to value (LTV) ratios for all new housing loans sanctioned up to March 31, 2022, RBI decided to extend the applicability of these guidelines till March 31, 2023.This will facilitate higher credit flow for individual housing loans.

    2. SLR holdings in HTM category - RBI decided to enhance the present limit under Held to Maturity (HTM) category from 22 percent to 23 per cent of NDTL till March 31, 2023. It has also been decided to allow banks to include eligible SLR securities acquired between April 1, 2022 and March 31, 2023 under this enhanced limit. The HTM limits would be restored from 23 per cent to 19.5 per cent in a phased manner starting from the quarter ending June 30, 2023.

    3. Discussion Paper on Climate Risk and Sustainable Finance

    4. Committee for review of Customer Service Standards in RBI Regulated Entities - RBI to set up a committee to examine and review the current state of customer service in the RBI Regulated Entities, adequacy of customer service regulations and suggest measure to improve the same.

    5. Interoperable Card-less Cash Withdrawal at ATMs - It is now proposed to make card-less cash withdrawal facility available across all banks and ATM networks using the UPI.

    6. Bharat Bill Payment System – Rationalisation of Net-worth Requirement for Operating Units - To further facilitate greater penetration of bill payments through the BBPS and to encourage participation of a greater number of non-bank Bharat Bill Payment Operating Units in the BBPS, it is proposed to reduce the net worth requirement of such entities from ₹100 crore to ₹25 crore.

    7. Cyber Resilience and Payment Security Controls of Payment System Operators (PSOs) - To ensure that our payment systems remain resilient to conventional and emerging risks, specifically those relating to cyber security, it is proposed to issue guidelines on Cyber Resilience and Payment Security Controls for Payment System Operators.

  14. 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 at 4.0 per cent.

    15. All members, namely, 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 remain accommodative while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

    16. The minutes of the MPC’s meeting will be published on April 22, 2022.

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

How economists and market experts reacted:

  • Dhiraj Relli, MD & CEO at HDFC Securitiessaid “The latest RBI policy reflects hesitant hints to turn hawkish but sound dovish. The aggressive cut in GDP estimates for FY23 and sharp increase in FY23 inflation projections could mean some tightening measures going forward, reinforced by the change in stance to focus on withdrawal of accommodation. The current geopolitical events, supply chain issues and commodity price inflation are tying the hands of RBI and forcing it to gradually turn hawkish although it would like to continue with its pro growth outlook. 10 Year Gsec yields has risen to 7 per cent reflecting the concern of the street on the large borrowing program amidst the rising rates scenario.”
  • V K Vijayakumar, Chief Investment Strategist at Geojit Financial Servicessaid “Retaining the repo rate at 4 per cent and reverse repo to 3.35 per cent, continuing with the accommodative stance on expected lines. Recognising the new reality of higher crude triggered by the war the RBI, as expected, reduced the FY23 GDP growth rate projection to 7.2 per cent from 7.8 per cent earlier and raised the CPI inflation projection for FY23 to 5.7 per cent from 4.5 per cent earlier. This is based on the assumption of crude at $100. This implies that growth and inflation can be better if crude declines sharply if the war hopefully ends early. The reverse can be true if the war aggravates and crude spikes much above $100. The Governor rightly emphasized India’s macro strengths pointing to the improvement in the external situation helped by the record exports, ample forex reserves of $608 billion and strengthening of the financial sector. A new tool introduced by the central bank is the SDF ( Standing Deposit Facility) to absorb liquidity. SDF will be the floor of the LAF corridor”
  • Nish Bhatt, Founder & CEO at Millwood Kane Internationalsaid “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 per cent, inflation aim hiked to 5.7 per cent from 4.5 per cent earlier. The clear aim of the central banks worldwide is to control inflation, unwind easy liquidity and focus on slow and steady growth.”
  • Adhil Shetty, CEO at BankBazaar.comsaid, “The Reserve Bank of India’s latest decision to maintain the status quo on the repo rate will keep homeowners happy for now. With no hikes in the repo rate, home loan rates will continue to be flat. Additionally, the central bank’s move to extend the rationalisation of housing loan risk weight and link them only to loan to value (LTV) ratios for home loans sanctioned up to March 31, 2023, may help keep lending costs cool. With lower provisioning required against home loans, banks will have more capital to lend out, which should contribute to keeping lending rates low. This remains a good time for prospective homeowners to take a home loan. There are at least 20 lenders now giving home loans at rates under 6.90 per cent to eligible borrowers. Even existing home loan borrowers may switch to lower interest rates to bring down their payments and increase long-term savings. Bear in mind that there are indicators that lending rates will rise. The 10-year bond yield is over 7 per cent now. Inflation has also hardened. If these trends continue, at some point, the central bank will have to hike rates.”
  • Ravi Singh, Vice President and Head of Research at Share India Securitiessaid, “RBI monetary policy has fallen much within the expectations of a dovish stance in view of the current crisis and maintains it’s pro-growth outlook. The geopolitical scenario on the global front and soaring inflation have led the RBI to lower its growth forecast to 7.2 per cent from 7.8 per cent and an increase in the inflation forecast for the current FY. However, the strong Indian forex reserves and a stable financial sector is providing some relief to the dismay. The unchanged repo rate will provide more elbow room to the homebuyers and helps in the revival of the realty sector. To curb the uncontrollable inflation, RBI has increased the reverse repo rate and sharp increase in the inflation projection has hinted towards a possible tightening in the near future.”

Source: rbi.org.in , Business Standard, Livemint, Money Control & Indian Express

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