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RBI Keeps Borrowing Costs Unchanged, Focuses on Supporting Economic Growth Amid Inflation Concerns

Strategic Insights

— 2 min read

As the RBI's Monetary Policy Committee met to discuss the country's economic situation, Governor Shaktikanta Das announced that the benchmark repurchase or repo rate would remain at 4% - a record low for the 11th consecutive time. This decision was made to support economic growth despite inflation edging higher due to the aftermath of Russia's war in Ukraine. The committee expressed concern about the potential for broad-based second-round price pressures following the sharp increase in domestic pump prices of petrol and diesel. The RBI also revised its inflation forecast to 5.7% for the fiscal year starting April 1, up from its earlier estimate of 4.5% in February. Meanwhile, the country's economic growth forecast was lowered to 7.2% for the current fiscal year, compared to the previous outlook of 7.8%. The RBI is working to create a gradual withdrawal of liquidity over a multi-year timeframe, starting this year.

Key Takeaways:

  • The RBI has maintained a record-low benchmark repurchase or repo rate at 4% for the 11th time in a row, with Governor Shaktikanta Das stating that the central bank will work towards gradual withdrawal of liquidity over a multi-year timeframe.
  • The RBI's inflation forecast has been raised to 5.7% for the current fiscal year, up from its earlier estimate of 4.5% in February, while the economic growth forecast was lowered to 7.2% from the previous outlook of 7.8%.
  • The RBI is concerned about the potential for broad-based second-round price pressures following the sharp increase in domestic pump prices of petrol and diesel.
  • The RBI announced a new tool to soak up excess cash in the banking system and plans to engage in a gradual and calibrated withdrawal of liquidity.
  • The global economy is still reeling from the aftermath of Russia's war in Ukraine, leading to volatility in commodity and financial markets.
  • India's economic growth appears to be well-placed to withstand the shock, supported by its forex reserves and stable financial sector.

Statistics:

  • 11 consecutive times that the RBI has maintained a record-low benchmark repurchase or repo rate at 4%.
  • Inflation forecast raised to 5.7% for the current fiscal year.
  • Economic growth forecast lowered to 7.2% from 7.8%.
  • Rs. 17.2 lakh crore in liquidity facilities were offered during the pandemic, out of which Rs. 11.9 lakh crore was utilized.
  • Rs. 5.0 lakh crore has been returned or withdrawn on the lapse of various facilities on their due dates.
  • Rs. 8.5 lakh crore in liquidity overhang in the system, which the RBI plans to withdraw gradually over a multi-year timeframe.

Sources:

  • Reserve Bank of India (RBI)
  • HT Digital Content Services
  • Tehelka
  • SyndiGate Media Inc. (Syndigate.info)

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