HomeNewsUncategorizedRBI Monetary Policy Highlights: Sep 30, 2022

RBI Monetary Policy Highlights: Sep 30, 2022

KEY DECISIONS

  • Increase the repo rate by 50 basis points to 5.9% – this was a unanimous decision
  • Standing Deposit Facility (SDF) was adjusted to 5.65%
  • The marginal standing facility (MSF) rate and the Bank Rate  adjusted to 6.15%
  • The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth
  • Growth projection at 7.2% for FY23-24
  • CPI inflation projection retained at 5.0% for Q1 FY23-24
  • RBI retained its FY23 CPI inflation at 6.7% and lowered FY23 growth expectation to 7.0% from 7.2%
  • RBI to continue managing systemic liquidity actively in line with stance of withdrawing accommodation

GROWTH & INFLATION

  • While softening commodity prices and increasing recession risks in advanced economies bode well for anchoring inflation, highly uncertain crude prices, food prices outlook, and elevated imported inflation pose upside risks to inflation.
  • Improving outlook on agriculture, government thrust on capex, pick-up in non-food credit, rural demand catching up, and urban demand gaining strength should augur well for future growth prospects. At same time, headwinds from geopolitical tensions, tightening global financial conditions, and slowing external demand pose downside risks to growth.
  • Maintaining vigil on global macro developments while recognizing domestic strengths and vulnerabilities, RBI wants to support medium-term growth prospects, hence the rate decision and policy stance.

OUT LOOK

  • The policy was largely on expected lines and did not lead to any material change in the markets. RBI did calm market nerves, which had become edgy post recent fed actions and financial market volatility.
  • With RBI maintaining inflation projections and mentioning that inflation is likely to remain elevated, it seems that the tightening of policy is more likely to continue going ahead and remain at elevated levels till such time that forward inflation projections do not show high probability of meeting 4% target over period.
  • We believe that central banks globally are likely to continue tightening their monetary policies and hence financial conditions are to remain under pressure. RBI has mentioned both global and local conditions and has also sounded caution on potential fallouts of same as markets are much integrated.
  • We believe RBI will continue to lay emphasis on macro stability and price stability and will move in line with global central banks in terms of direction of policy. Having said that, inflation-growth dynamic in India might not warrants a similar quantum move by RBI as some of other central banks. As far as terminal rate goes, we believe RBI will move with incoming data and not commit to any pre-determined levels given the uncertainties in the global markets.
  • Our assessment of current conditions makes us believe that Repo Rate should go to 6.40% to 6.65% over next couple of policies as this would maintain interest rate guard for our currency.

Source: Tata Mutual fund

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