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Mumbai, Feb 10 (PTI) The Reserve Bank of India (RBI) on Thursday held its key lending rates steady at record low levels for the 10th straight meeting to support a durable recovery of the economy from the COVID-19 pandemic.
RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) decided to hold the lending rate, or the repo rate, steady at 4 per cent, and the reverse repo, or the rate at which it absorbs excess cash from lenders, unchanged at 3.35 per cent.
The six-member MPC, which has been on pause since August 2020, voted unanimously to maintain the status quo on the repo rate and by a majority of 5-1 to retain the accommodative policy stance as long as necessary, he said.
"Monetary policy actions will be calibrated and well telegraphed," he said, indicating that there will not be any surprises.
"Overall, taking into consideration the outlook for inflation and growth, in particular the comfort provided by improving inflation outlook, the uncertainties related to Omicron and global spillovers, the MPC was of the view that continued policy support is warranted for a durable and broad-based recovery," he noted.
While a status quo on repo rate was expected, some economists had expected a hike in the reverse repo to re-align it with short-term money market rates.
MPC continuing with the accommodative policy stance was one of the prime reasons Das cited for not hiking the reverse repo rate.
The decision comes days after Finance Minister Nirmala Sitharaman proposed to up spending to support the economy's world-beating recovery.
"The government's thrust on capital expenditure and exports are expected to enhance productive capacity and strengthen aggregate demand. This would also crowd in private investment," the RBI Governor said.
RBI projected a 7.8 per cent economic growth in the coming fiscal starting April 1, down from 9.2 per cent expected in 2021-22, in view of uncertainties on account of pandemic and elevated global commodity prices.
GDP growth is marginally below the lower limit of the band of 8-8.5 per cent given in the Economic Survey of 2021-22 and well below the IMF's forecast of 9 per cent.
The central bank also lowered the inflation outlook to 4.5 per cent for the next fiscal, from 5.3 per cent in the current year, on the assumption of a normal monsoon during the year.
Retail inflation accelerated to a five-month high of 5.59 per cent in December from a year earlier, while wholesale price-based inflation eased marginally to 13.56 per cent, but remained in double-digits for nine straight months.
The "headline inflation is expected to peak in Q4:2021-22 (January-March 2022) within the tolerance band and then moderate closer to target in H2:2022-23, providing room for monetary policy to remain accommodative," he said.
Other decisions announced include curtailment of the hours when reverse repo and MSF windows can be availed -- a return to pre-pandemic methods of managing liquidity. Variable repo, reverse repo of 14-day will be the main liquidity tool while auctions of longer maturity will be conducted as needed.
RBI also increased the maximum amount of e-RUPI from Rs 10,000 to Rs 1 lakh and the e-RUPI voucher can be used more than once until the amount is fully redeemed to facilitate the delivery of various government schemes to the beneficiaries more efficiently.
Currently, the use of e-RUPI is popular for use-cases like disbursal of government benefits, primarily for COVID-19 vaccinations. e-RUPI's key benefit for the government is in enabling penetration among the unbanked and feature phone users, allowing issue without needing the recipient's bank account or KYC. The proposal will further help in the delivery of various government schemes to the beneficiaries more efficiently.
The RBI had slashed the repo rate by a total of 115 basis points (bps) since March 2020, to soften the blow from the coronavirus pandemic and tough containment measures. The rate is now 250 bps below its level at the beginning of 2019, when the easing cycle began.
On crypto, Das said private cryptocurrencies are a threat to macroeconomic and financial stability, and undermine its ability to deal with challenges on the two fronts.
Cautioning investors, the governor said such assets have no underlying value whatsoever, "not even a tulip".
Commenting on the policy, Abheek Barua, Chief Economist, HDFC Bank, said the decisions showed a clear tilt towards growth and a view that inflation, where elevated, is driven more by the supply disruptions rather than entrenched demand side pressures.
"This was the first policy of the calendar year and perhaps sets the tone for the rest of the year. Were that indeed the case, the RBI is likely to follow a gentle approach to the normalization and ultimately withdrawal of monetary support unlike Western central banks that have switched to a hyper-aggressive mode. This is consonant with the growth and inflation dynamics specific to India," he said.
D K Srivastava, Chief Policy Advisor, EY India, said while 13.9 per cent average WPI inflation rate during October-December 2021 is bound to pull up the CPI inflation rate, there would also be some pressure on interest rate on government borrowing due to its large gross borrowing program in 2022-23.
It is possible that the RBI may reconsider its growth and inflation forecasts and its policy stance early in the next fiscal year, he added.
Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, said the RBI has taken a dovish stance on inflation, in the context of the severe global inflationary landscape. "We attach an upward bias to RBI's inflation forecast with our headline estimate at 5.5 per cent in FY22 and 5.0 per cent for FY23 even in a moderately conducive scenario."
Madan Sabnavis, Chief Economist, Bank of Baroda, said, "The surprise element in the credit policy is the very dovish stance taken by the MPC which in a way supports the expected large government borrowing programme as well as the corporates that will be borrowing funds this year."
"The take on inflation is fairly aggressive for FY23 as the forecast of 4.5 per cent assumes that the oil economy remains stable, which is probably the biggest risk today," he noted. PTI DP ANZ ANZ ABM