NEW DELHI: An explicitly dovish-toned RBI on Friday chose to keep interest rates unchanged as it lowered GDP growth projection for the current financial year to 9.5%, dashing hopes of a double-digit economic growth.
The downward revision highlights the economy-wide stress.
Even as RBI Governor Shaktikanta Das was convinced a normal monsoon and business resilience can aid economic recovery, he admitted there were risks to the growth. The central bank was also mindful of the inflation, which it estimates to be at a moderate 5.1% for FY22 despite the recent rise in commodity prices, which the monetary policy committee feels is driven by supply-side constraints.
Announcing a slew of liquidity measures, Das said RBI’s focus is now shifting to equitable distribution of liquidity.
FY22 GDP GROWTH LOWERED TO 9.5%
RBI has lowered the growth estimate for 2021-22 from 10.5% forecast earlier to 9.5% as “sudden rise in Covid-19 infections and fatalities has impaired the nascent recovery that was underway”. According to RBI’s revised estimates, Q1 growth is now pegged at 18.5% against 26.2% projected earlier. Q2 growth was lowered marginally to 7.9% from 8.3%
Good monsoon to temper Inflation
“A normal south-west monsoon along with comfortable buffer stocks should help to keep cereal price pressures in check,” Das said. However, rising commodity prices, especially crude, together with logistics costs could pose serious challenges to the outlook. Das pegged quarter-wise inflation projections for FY22 at 5.2% in Q1; 5.4% in Q2; 4.7% in Q3; and, 5.3% in Q4, with risks broadly balanced
POLICY RATES KEPT AT RECORD LOW
The six-member Monetary policy committee decided to keep repo rate (at which banks borrow from RBI), unchanged at a record low of 4% and the reverse repo rate (at which RBI borrows from banks) at 3.35%. RBI had slashed the repo rate by 115 bps since March 2020, to soften the blow from the pandemic. It was last revised in an off-cycle policy review in May
Targeted regulatory measures
RBI introduced a liquidity window of Rs 15,000 crore for contact-intensive sectors such as hotels & restaurants, transport, tourism, event management companies and beauty salons that have been disproportionately targeted in the latest round of lockdowns. The window is available till March 2022. RBI has also enhanced the threshold exposure for availing its restructuring programme for small businesses and loans to individuals for business from Rs 25 crore to Rs 50 crore
Rs 1.2 lakh crore Bond buying
RBI has announced the second phase government bond-buying scheme – G-SAP 2.0 – under which it will buy Rs 1.2 lakh crore worth of bonds in July-September