RBI Keeps Repo Rate Unchanged, Cuts Growth Forecast, Raises Inflation Target

The Reserve Bank of India's Monetary Policy Committee (MPC) led by Governor Shaktikanta Das unanimously voted to keep repo rate unchanged at record low of 4 per cent and maintained accommodative. However, the central bank cut the growth outlook and raised inflation target for the current financial year.

The RBI projected growth projection of 7.2 per cent from 7.8 per cent earlier amid volatile crude oil prices and supply chain disruptions due to the ongoing Russia-Ukraine war.

The central bank also hinted towards policy normalisation going ahead as it said will withdraw its accommodative stance to focus on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth, RBI Governor Das said.

This is the 11th time in a row that the MPC 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.

"...real GDP growth for 2022-23 is now projected at 7.2 per cent with Q1:2022-23 at 16.2 per cent; Q2 at 6.2 per cent; Q3 at 4.1 per cent; and Q4 at 4 per cent, assuming crude oil (Indian basket) at $100 per barrel during 2022-23," Das said, adding that the Indian economy is steadily reviving from its pandemic-induced contraction.

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 central bank raised the retail inflation target for the current financial year to 5.7 per cent on the back of rising global prices amidst the ongoing geo-political tensions, even as it expected the prices of cereals and pulses to soften on prospects of good winter crop harvest.

"Global food prices along with metal prices have hardened significantly. Economy is grappling with a sharp rise in inflation... Inflation is now projected at 5.7 per cent in 2022-23 with Q1 at 6.3 per cent; Q2 at 5 per cent; Q3 at 5.4 per cent and Q4 at 5.1 per cent," RBI Governor Shaktikanta Das said while unveiling the first monetary policy review for the current fiscal year.

In its earlier policy review in February, the RBI had projected retail inflation to be at 4.5 per cent in 2022-23.

While raising the inflation target Governor Das said, “Since the MPC’s last meeting in early February 2022, the expected positive benefits from the ebbing Omicron wave have been offset by the sharp escalation in geopolitical tensions. This has significantly changed the external and domestic landscape. Concerns over protracted supply disruptions have rattled global commodity and financial markets, given the significant share of the two economies engaged in war in global production and exports of key commodities like oil and natural gas; wheat and corn; palladium, aluminium and nickel; edible oils; and fertilisers. Global crude oil prices briefly crossed $130 per barrel, touching their highest level since 2008 and remain volatile at elevated levels, despite some correction. Global food prices along with metal and other commodity prices have also hardened significantly.”

Meanwhile, RBI Governor Das reiterated his resolve to support the economy amid the ongoing geopolitical scenario.

“The conflict in Europe now poses a new and overwhelming challenge, complicating an already uncertain global outlook. As the daunting headwinds of the geopolitical situation challenge us, the RBI is braced up and prepared to defend the Indian economy with all instruments at its command. As we have demonstrated over the last two years, we are not hostage to any rulebook and no action is off the table when the need of the hour is to safeguard the economy. Our goals of price stability, sustained growth and financial stability are mutually reinforcing and we continue to be guided by this approach,” Governor Das said.