The Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) on Friday voted unanimously to keep the policy repo rate ‘unchanged at 4 per cent.’
All accommodative measures were set into ‘withdrawal mode’ to ensure inflation remains within the target but at the same time supporting growth.
Due to the geo-political situation in Ukraine posing a risk to growth and an upside risk to inflation projections, the RBI took the call to revise its projections upwards and sharply cut its growth projections for the economy in the current financial year.
Bond yields jumped sharply on the news. The 10-year bond yield was at 7.002 per cent at 11:18 am, a jump of 1.27 per cent since yesterdays close at 6.996 per cent.
RBI Governor Shaktikanta Das said in his statement ‘It may, however, be noted that given the excessive volatility in global crude oil prices since late February and the extreme uncertainty over the evolving geopolitical tensions, any projection of growth and inflation is fraught with risk, and is largely contingent upon future oil and commodity price developments.’
In the February monetary policy, GDP growth for FY23 was projected at 7.8 percent by the RBI, lower than earlier estimates by think tanks. Inflation was projected at 4.5 per cent for FY 23, despite crude prices hovering above $90 a barrel.
The RBI injected liquidity into the system to the tune of INR 17.2 trillion during the Covid-19 pandemic of which INR 11.9 trillion was utilized.
INR 5 tn has been returned or withdrawn on the lapse of various facilities on their due dates.
The extraordinary liquidity measures undertaken in the wake of the pandemic, combined with the liquidity injected through various other operations of the RBI have left a liquidity overhang of the order of Rs 8.5 trillion in the system, the Governor said.
The RBI will engage in a gradual and calibrated withdrawal of this liquidity over a multi-year time frame in a non-disruptive manner beginning this year. The objective is to restore the size of the liquidity surplus in the system to a level consistent with the prevailing stance of monetary policy.
‘While doing so, I would like to reiterate our commitment to ensure the availability of adequate liquidity to meet the productive requirements of the economy. We also remain focussed on completion of the borrowing programme of the Government and towards this end the RBI will deploy various instruments as warranted,’ he added.