RBI keeps repo rate unchanged; check GDP forecast, liquidity measures and more

RBI Monetary Policy: In its latest bi-monthly Monetary Policy meet held today, the central bank has kept the repo rate unchanged at 4%. Here are the major highlights:

RBI Monetary Policy: Repo Rate unchanged

• The six-member Monetary Policy Committee (MPC) decided to keep the benchmark repo and reverse repo rates unchanged. 
• The repo rate (also known as the short-term lending rate) was the last cut on May 22, 2020. Since then, the rate remains at a historic low of 4%. In the last 11 meetings, the MPC has kept the interest rate unchanged. Repo rate is the rate at which RBI lends money to the banks. 
• The RBI has also kept the fixed rate reverse repo unchanged at 3.35%. This is the rate which RBI provides to banks to park excess liquidity. 
• The Standing Deposit Facility Rate stands at 3.75%. The RBI had introduced the standing deposit facility, through which it intends to suck out excess liquidity in the system at lower rates, without offering collateral to banks. This is being done to manage excess liquidity in the system.
• The marginal standing facility will be offered at a rate of 4.25%; 25 basis points above the repo rate. Using this facility, all the scheduled banks under RBI can avail money in emergency situations up to 1% of their NDTL (net demand and time liabilities) or SLR (Statutory Liquidity Ratio) securities.
• The committee has maintained an ‘accommodative’ stance. The Committee has indicated that it will focus on withdrawal of its accommodative stance going forward, to ensure that the inflation remains within its tolerance band, while at the same time supporting growth.

RBI Monetary Policy 2022: Update on inflation

• Assuming India will have a normal monsoon and crude oil price at $100 per barrel, the RBI has stated that inflation will be 5.7% for FY23.
• For Q1, inflation will be 6.3% and it will be 5%, 5.4%, and 5.1% for Q2FY23, Q3FY23, and Q4FY23, respectively.
• Retail inflation inched up to an eight-month high of 6.01% in February 2022 while wholesale inflation remained elevated at 13.1% in February 2022.
• As per RBI Governor, the macroeconomic outlook going under tectonic shifts must take preemptive steps. RBI will continue to take a nuanced and nimble approach.
• Edible oil prices are likely to stay elevated in the near term. Spike in crude oil since end-Feb poses a substantial risk to inflation.

RBI Monetary Policy 2022: GDP growth update

• The MPC has decided to continue with an accommodative stance to revive and sustain growth on a durable basis.
• The GDP growth rate for Financial Year 2022-23 would be at 7.2%. The growth rate has been lowered from an earlier estimate of 7.8%.
• Assuming oil at $100 per barrel, GDP growth is seen at 16.2% in April-June 2022, 6.2% in July-September 2022, 4.1% in October-December 2022, and 4% in January-March 2023.

RBI Monetary Policy 2022 Update: Cardless cash withdrawal

• The system of cardless cash withdrawal will be made available across all banks and ATM networks using UPI.
• The cardless withdrawal request can be initiated for a minimum of ₹100 per transaction 
• The maximum limit will be of Rs 10,000 per day 
• In a month, cardless withdrawal cannot exceed  Rs 25,000
• Net worth requirement for Bharat Bill Payments System Operating Units lowered from Rs 100 crore to Rs 25 crore.
• To secure payment systems, propose guidelines would be made available to operators.

RBI policy: Other Updates

• RBI enhances the held-to-maturity limit on SLR from 22% to 23% of NDTL till Mar 31, 2023. HTM limits are to be restored to 19.5% in a phased manner starting from the quarter-ending June 2023.
• Robust rabi crop should support rural demand; pickup in contact-intensive services to help boost urban demand.
• RBI Governor says the central bank's foreign exchange remains robust at $606.5 bln as of April 1.
• High-frequency indicators such as railway freight, GST collection, electricity demand, and import of capital goods saw robust improvement in February and March. The Indian economy is steadily reviving from pandemic-induced contraction.
• Since the previous meeting, RBI noted that geopolitical tensions between Russia and Ukraine have offset the impact of receding Omicron virus. The upside risks to inflation, hence remain elevated.  

RBI Monetary Policy 2022: INDmoney Analysis

• The status quo on repo rate was largely in line with street expectations.
• However, revising inflation forecast upwards has led to bond markets reacting negatively, with 10-year yields rising past the 7% mark for the first time since June-19. 
• The Committee has indicated that it will focus on withdrawal of its accommodative stance to ensure that the inflation remains within its tolerance band, while at the same time supporting growth.
• The status quo on rates comes as a positive news for banks, as there has been no change in their borrowing costs. 
• Analysts expect the RBI to move to a neutral stance in August policy and anticipate a repo rate hike in the second half of the year, as inflation has breached its upper tolerance band. 
• Invest in equities in a staggered manner. Keep your SIP’s running. Stick to large caps and index stocks that are best suited to navigate the volatility.
• Stick to AAA-rated low duration funds and bonds over high duration funds, and long-maturity bonds as yields will remain volatile in the near future. 
• The interest rates are expected to bottom out and move higher over the next 3-6 months. Shorter duration funds are likely to outperform in this scenario, given their lower sensitivity to interest rate changes as compared to long-duration funds.