Monetary Policy Review: RBI
The Reserve Bank of India (RBI) in its latest Monetary Policy review has decided to keep the main policy rate – Repo rate – unchanged at 4%.
- It has also retained its accommodative stance, but indicated it will engage in a gradual and calibrated withdrawal of surplus liquidity to rein in inflation.
Monetary Policy Review:
- In the wake of the rise in crude oil and commodity prices and the impact of the Russian invasion of Ukraine, RBI has slashed the growth forecast to 7.2% for fiscal 2022-23 from 7.8% projected earlier.
- The Russia-Ukraine war could potentially impede the economic recovery through elevated commodity prices and global spill-over channels.
- The RBI also introduced a new measure, the Standing Deposit Facility an additional tool for absorbing liquidity to suck out surplus liquidity of Rs 8.5 lakh crore from the financial system which is fuelling inflation.
- This Monetary Policy Review signals that the RBI has finally shifted its priorities to tackle inflation.
- Thus, there is a possibility of a hike in its key policy rate (Repo Rate) in the coming months.
- Further, RBI has hiked its inflation forecast from 4.5% projected earlier to 5.7% still below the upper band of 6% of the RBI’s target – in 2022-23.
- RBI policy panel took a concrete step by restoring the policy rate corridor under Liquidity Adjustment Facility(LAF) to pre-pandemic width of 50 basis points.
- This is aimed at bringing down the inflationary pressures.
- LAF is a tool used in the monetary policy that allows banks to borrow money from the RBI through repurchase agreements (Repo) or to lend funds to the RBI through reverse repo agreement.