RBI's MPC meet key takeaways: Repo rate, liquidity, inflation, GDP, and more

Amid the ongoing impact of the Omicron variant of Covid-19 across the world and in India, the Reserve Bank of India (RBI) once again kept the repo rates unchanged at 4 per cent and reverse repo rate at 3.35 per cent while maintaining an ‘accommodative’ policy stance. This is the tenth consecutive time that the central bank maintained the status quo amid the ongoing uncertainties for continued growth.

However, there were expectations that the RBI may hike the reverse repo rate and may change its stance to ‘Neutral’ from ‘Accommodative’ in tandem with hawkish global central banks amid rising inflation but the apex bank continued with its existing stance. Below are the key takeaways from the monetary policy outcome.

What's in it for borrowers? Anuj Puri, chairman, ANAROCK Group said the fact that the repo rates remain unchanged is good for home loan borrowers as the floating retail loan rates, which are directly linked to external benchmark repo rates, will continue at what are the lowest levels in the last two decades. A continuation of this low-interest rate regime supports the overall environment of affordability for some more time.

Farshid Cooper, MD, Spenta Corporation said, “It is a relief for homebuyers that interest rates will continue to remain unchanged in the near future. We hope that this continues to reflect increased home sale volumes.”

Accommodative stance: The MPC decided 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.

Weak demand: The central bank further highlighted that high-frequency indicators suggest some weakening of demand in January 2022 reflecting the drag on contact-intensive services from the fast spread of the Omicron variant in the country. “Rural demand indicators such as two-wheeler and tractor sales contracted in December-January. Amongst the urban demand indicators, consumer durables and passenger vehicle sales contracted in November-December on account of supply constraints while domestic air traffic weakened in January under the impact of Omicron,” RBI said in a release.

Inflation: The RBI further added that cost-push pressure on core inflation may continue in the near term. Inflation projection for 2021-22 is retained at 5.3 per cent, with Q4 at 5.7 per cent. The MPC notes that inflation is likely to moderate in the second half of FY23. On the assumption of a normal monsoon in 2022, CPI inflation for 2022-23 is projected at 4.5 per cent with Q1FY2022-23 at 4.9 per cent, Q2FY23 at 5 per cent, Q3FY23 at 4 per cent and Q4FY23 at 4.2 per cent.

GDP: The Reserve Bank of India (RBI) Governor Shaktikanta Das said that global financial market volatility, elevated international commodity prices, especially crude oil, and continuing global supply-side disruptions pose downside risks to the outlook. The real GDP growth for 2022-23 is projected at 7.8 per cent with Q1FY23 at 17.2 per cent; Q2FY23 at 7 per cent, Q3FY23 at 4.3 per cent and Q4FY23 at 4.5 per cent.

Liquidity facility: With an objective to support vulnerable sectors, the RBI also decided to continue the on-tap liquidity facility for contact intensive and health services sectors. On-tap liquidity facilities of Rs 50,000 crore and Rs 15,000 crore for emergency health services and contact-intensive sectors, respectively, were announced in May and June 2021 during the second wave of the pandemic. Banks were given certain incentives for lending under the two schemes. On account of the continued uncertainties brought on by the third wave, the two schemes are being extended from March 31, 2022 to June 30, 2022.

Other updates: All members of the MPC including Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Mridul K Saggar, Michael Debabrata Patra and Shaktikanta Das unanimously voted to keep the policy repo rate unchanged. The minutes of the MPC’s meeting will be published on February 24, 2022 and the next meeting of the MPC is scheduled during April 6-8, 2022.