NEW DELHI: The Reserve Bank of India (RBI) has finally woken up to the inflation concern as its governor Shaktikanta Das said on Friday that it has put inflation ahead of growth, changing its long-held monetary policy priority of growth over inflation.
Although RBI has kept the rate at which it offers overnight loans to banks, it heralded the end of an ultra ‘accommodative’ stance by owning up to the inflation concerns. The central bank raised the 2022-23 inflation estimates by 120 basis points to 5.7% from its earlier estimate of 4.5%. It also cut 2022-23 GDP growth estimate from 7.8% to 7.2%.
“For the past three years, RBI has given growth the priority over inflation. That has changed with this monetary policy,” Das said in his press briefing. In its policy statement, RBI admitted that heightened geopolitical tensions have ‘clouded’ its earlier inflation outlook, and expressed concern over rising prices due to global supply disruption.
While revising the growth estimate to 7.2%, RBI also accounted for factors other than Russia-Ukraine tensions such as financial market volatility owing to withdrawal of excess liquidity by central banks across the world and renewed Covid-19 infections in major countries.
Das said the government is gradually moving away from an ultra-accommodative stance to an accommodative one. An accommodative stance means cutting policy rates, not hiking interest rates for a protracted period as well as a keenness to raise money supply.
The central bank introduced a new policy tool — Standing Deposit Facility – which allows it to take excess cash from banks without giving government securities as collateral. This makes RBI’s job of sucking excess liquidity from the system easier.