RBI Monetary Policy

By : Neha Dhyani

Updated : Mar 2, 2023, 17:04

Amid the general public's expectation for repo rates to remain the same and the expert opinions that the reverse repo rate to normalise liquidity, the Reserve Bank of India (RBI) announced the RBI Monetary Policy on 10th February 2022.

Previously triggered by the third wave brought on by the Omicron variant in India, the Central Bank's decision at the bi-annual meet decided to continue with the existing repo rates, which were at a record low.

The RBI Monetary Policy 2021 at a Glance

The Reserve Bank of India's (RBI) six-member monetary policy committee (MPC), chaired by Governor of the RBI Shaktikanta Das, decided to hold key interest rates unchanged for the ninth consecutive meeting, maintaining an accommodating stance in the face of the Omicron variant's danger.

The current repo and reverse repo rates are 4 per cent and 3.35 per cent, respectively.

Das emphasised that the RBI would continue to manage liquidity to support recovery and promote macroeconomic and financial stability. The Reserve Bank has maintained its liquidity strategy, stating that it will continue to absorb money through variable-rate reverse repo (VRRR) operations.

Even though there is an increase in the auction amount, 4-day VRRRs will continue to be the preferred duration for absorbing liquidity. On 17th December, the RBI will hold a VRRR auction for Rs 6.5 trillion, followed by a VRRR auction for Rs 7.5 trillion on 31st December.

Economic Growth Prospects

Prospects for growth in this fiscal year increased by 20.1% in the first quarter and 8.4% in the second. Production will likely continue robust in the third quarter, with the economy reopening and high-contact services returning. However, supply problems, increasing material prices, and concerns over the new Covid-19 variant Omicron have added to the outlook's uncertainties.

Keeping in mind all the RBI Monetary Policy 2021 considerations, the actual GDP growth forecast for FY22 remains at 9.5 per cent. The prediction for real GDP growth is 6.6 per cent in Q3 FY22, 6 per cent in Q4 FY22, 17.2 per cent in Q1 FY23, and 7.8 per cent in Q2 FY23.

Framework to Combat Inflation

The expectation for Inflation is to be 5.3 per cent in FY22. It is predicted that Inflation will lower to 5.1 per cent in the third quarter and 5.7 per cent in Q4 of FY22.

After that, the prediction drops to 5% and is expected to remain the same for the first two quarters of the following fiscal year.

In general, there were no surprises in the RBI policy, and it was a non-event. We believe that real GDP growth will be lower than the RBI's predictions in the future, with Inflation following suit. Along with the mounting Omicron danger, there is a possibility of postponing the rise in the reverse repo to April 2022.

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FAQs on RBI Monetary Policy

Q.1 What is RBI's latest monetary policy?

The marginal standing facility (MSF) and bank rates continue at 4.25 per cent, but the reverse repo remains the same (3.35 per cent).

Q.2 How many times does the RBI announce the monetary policy?

The Reserve Bank of India's (RBI) six-member monetary policy committee (MPC) meets at least four times a year to announce the monetary policy.

Q.3 What are the three main tools of monetary policy?

The three main tools are open market operations, the discount rate, and reserve requirements.