On December 8, the Monetary Policy Committee (MPC) kept the key lending rate, repo, at 4% and maintained its “dovish” position.
The MPC said the political position will remain “accommodating” until there is a lasting recovery in the Economy. An accommodative stance means the MPC is ready to cut rates or keep rates unchanged. Governor Shaktikanta Das said: “
The outlook for economic activity is improving steadily,” he said, but added that continued monetary policy is necessary for a sustained recovery of the economy. India’s GDP in the second quarter of FY22 grew 8.4%, compared to a decline of 7.4% in the corresponding period last year. But this is largely due to the base effect.
The RBI kept its GDP growth projection at 9.5 percent for FY22, but revised its third-quarter growth estimate for FY22 to 6.6 percent versus 6.8 percent previously. Das said the emergence of Omicron raised fears of further restrictions on travel and economic activity, which has led to “significant uncertainty over the growth momentum” for the coming months.
The governor said lowering VAT on fuel would have a direct impact on inflation, but price pressures could persist in the short term. However, the RBI expects headline inflation to peak in the fourth quarter of the 22nd quarter, after which it is expected to slow.
Inflation has come down lately, but is still far from the ideal MPC rate of 4%. India’s retail sales inflation rate, as measured by the Consumer Price Index (CPI), reached 4.48% in October. The CPI-based inflation in September 2021 was 4.35% and 7.61% in October 2020.