Repo rate is the rate at which RBI lends to banks, whereas reverse repo rate is the rate at which it borrows from banks.
The six-member MPC, headed by RBI Governor Shaktikanta Das, met for three days from December 6.
The central bank last revised the policy rate on May 22, 2020 to meet demand by cutting the interest rate to a historic low in an off-policy cycle.
Here are the highlights of this meeting:
Policy rates unchanged for the 9th time
* RBI maintains status quo for the 9th time in a row in the backdrop of concerns over the emergence of new coronavirus variant Omicron.
* The reverse repo rate also remained unchanged at 3.35 per cent, while the marginal standing facility (MSF) stands at 4.25 per cent.
* The MPC voted unanimously to keep the interest rate unchanged and decided to continue its accommodative stance for as long as necessary to support growth and keep inflation within target.
GDP forecast remains at 9.5 per cent
* RBI retained its growth forecast for the current fiscal at 9.5 per cent, despite concerns over Omicron.
*Q3 GDP is projected at 6.6 per cent, for Q4 it is pegged at 6 per cent.
* Real GDP growth is projected at 17.2 per cent for the first quarter of 2022-23 and 7.8 per cent for the second quarter of 2022-23.
CPI inflation projected at 5.3%
* CPI inflation is projected to be 5.3 per cent in 2021-22. This has a broadly balanced risk of 5.1 percent in Q3 and 5.7 percent in Q4.
* Das said price pressure may persist in the immediate term. Keeping in view the bright prospects of Rabi crops, with the arrival of winters, the prices of vegetables are expected to see a seasonal improvement.
* Das said the RBI’s monetary policy stance is primarily in line with emerging domestic inflation and growth dynamics.
* Cost-push pressures from higher industrial raw material prices, transportation costs, and global logistics and supply chain constraints continue to impact core inflation, he said.
‘VAT cut, excise duty on fuel should help’
* The RBI governor said the recent cut in excise duty and state VAT on petrol and diesel should support consumption demand by increasing purchasing power.
Government consumption has also been rising since August, which is supporting aggregate demand, he said.
Launch of UPI-based mobile products
* Central bank Gilts Retail will also launch Unified Payments Interface (UPI) based feature phone product to increase the IPO limit from Rs 2 lakh to Rs 5 lakh.
‘Recoveries rising, but Omicron bleak economic outlook’
* The governor also emphasized that the recovery that was interrupted by the second wave of the pandemic is gaining traction again but it is not yet strong enough to be self-sustaining and sustainable.
* He added that the emergence of Omicron and the resurgence of Kovid infections in many countries has increased the risk of a downgrade in the outlook.
* Despite some recent reforms, advanced economies continue to face unfavorable conditions due to the rapid normalization of monetary policy and potential volatility in global financial markets due to prolonged global supply constraints, rising international energy and commodity prices is falling
Banks can infuse capital in foreign branches without permission
* RBI allowed banks to infuse capital into their overseas branches as well as repatriate profits without its prior approval subject to meeting certain regulatory capital requirements.
* Presently, banks incorporated in India can infuse capital in their overseas branches and subsidiaries, retain profits in these centers and repatriate/transfer profits with the prior approval of the Reserve Bank of India.
* “With a view to providing operational flexibility to banks, it has been decided that banks do not require prior approval of RBI on meeting regulatory capital requirements,” Shaktikanta Das said while announcing the bi-monthly monetary policy.
Experts welcome RBI’s decision
Welcoming the MPC’s decision to keep key policy rates, Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “Low interest regime and adequate liquidity in the system are key to further strengthen the domestic market. That the RBI has announced further measures. To pool the additional liquidity, it has also assured that adequate liquidity will be maintained as required. We expect the policy to pick up the pace of growth in the wake of the new version, Omicron. will help maintain it.”
Shraddha Kedia-Agarwal, director, Transcon Developers, said the RBI was hoping to maintain status quo on key policy rates given inflation concerns in recent months.
“The decision amidst rising fears due to the new Omicron variant will help in maintaining liquidity for some period. Low interest rates for the past few months have already given the real estate sector a boost in demand over the last few quarters and for home buyers. Increasing buyer’s confidence,” she said.
Stating that lower interest rates are crucial for demand revival in the real estate sector, Pritam Chivukula, Co-Founder and Director Tridhatu Realty and Hon. Secretary, CREDAI MCHI said: “Buyers are already coming back to the market and we feel this will be an opportunity for home buyers to buy properties with lower interest rates before RBI decides to increase it in its next policy announcement.” Might be the last chance. Also, keeping the prices down due to increase in raw material prices will be a big challenge for the developers.”
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