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RBI Prioritizes Inflation But Keeps Batting For Growth For Now

By Sunil Garodia
First publised on 2022-04-08 14:34:23

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Author of Cyber Scams in India, Digital Arrest, The Money Trap and The Human Hack

The Monetary Policy Committee (MPC) of the RBI has maintained status quo on key policy rates and will continue to maintain the accommodative stance in its bi-monthly policy meeting for April. But it has revised the growth forecast for FY23 from 7.8% to 7.2% and also changed inflation projections to 5.7% from the earlier 4.5% mainly due to the war in Ukraine and the resultant upheaval in financial markets, high fuel and commodity prices and supply chain disruptions. It also prioritized inflation, as the other central banks across the world have been doing but without adopting a hawkish stance. RBI governor Shaktikanta Das said that "in the sequence of priorities we have now put inflation before growth. Stance continues to be accommodative and with an eye on withdrawal of accommodation."

The repo rate was maintained at the historic low of 4% while the reverse repo rate also remained at 3.35%. The standing deposit facility was activated with a rate 25 basis points below the repo rate and the marginal standing facility was kept at 25 basis points above the repo rate. The RBI also hiked the hold-to-maturity limit to 23% and said it would be brought down gradually to 19.5% in order to keep bond markets steady.

But after Das said that the bank will keep "an eye of withdrawal of accommodation", most analysts predict that the RBI will raise rates in the second half of FY23 and will also start squeezing out liquidity from the market. Yet, in this policy meeting, while the MPC has acknowledged the mischief high inflation can create, it has still chosen to bat for growth. This was best put by Churchil Bhatt, EVP & Debt Fund Manager at Kotak Mahindra Life Insurance Company who said that "the MPC has taken a timely step towards re-emphasizing its credibility as an inflation fighter without materially disrupting the growth impulse".

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