RBI MPC keeps rate unchanged – Experts welcome decision say economy still needs support

In line with the majority of analysts’ expectations, the Monetary Policy Committee of the Reserve Bank of India for the ninth straight time has kept the benchmark interest rates unchanged to 4 per cent and maintained an accommodative stance in its fourth bi-monthly policy in FY22 on Wednesday. 

The RBI Governor Shaktikanta Das in the December policy statement had expressed that the Indian economy is relatively well-positioned on the path of recovery and activities level are reaching pre-pandemic level. 

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Besides, the Governor also listed out multiple developmental and regulatory policies, mainly applicable to financial markets along with payment and settlement systems.  

Welcoming the RBI MPC decision, Shanti Lal Jain, MD & CEO of Indian Bank has said, “The Indian economy is showing strong and resilient signs of recovery as some high-frequency indicators reached their pre-pandemic level in the last two months.” 

Although the CPI inflation is inching up, the fall in global crude oil prices and recent excise duty cuts on fuel will support the inflation to remain within the RBI’s target of 4-6 per cent. A positive outlook for rabi production and favourable monsoon also augurs well for the food inflation, Jain added. 

On the regulatory measures, the Indian Bank MD & CEO said, “The measures on digital front and easing of capital infusion norms of overseas branches will further help in banking business grow.”  

Stating that economy still needs a lot of support from the central bank to sustain the expected growth rates, Raghvendra Nath, MD of Ladderup Wealth Management mentioned that the low interest rates shall play a crucial role in reviving demand and kick start the capex cycle.  

Moreover, inflation is not a big worry right now as most of recent spike in inflation is caused higher commodity prices that are driven by international factors and therefore shall remain unaffected by the RBI’s monetary stance, the Laderup Wealth Management MD also said in his comment. 

According to Raghvendra Nath, “The fear of coronavirus derailing the economy once again through another wave is real and highly probable. These times requires high degree of monetary and fiscal support and the RBI is rightly dealing with it through its easy policy.” 

Immediate risks to growth as seen from the Omicron is one specific factor that allows RBI to stay on a status-quo for now, Chief Economist - YES Bank, Indranil Pan said in his comment post RBI’s policy decision on Wednesday.  

Indranil Pan believe that RBI will attempt to close the LAF (Liquidity adjustment facility) corridor in February if the understanding on the growth-inflation dynamics turns favourable towards growth.  

Before concluding he added, “Any changes to the repo rate are still way off and into FY23. Taking a call immediately may be difficult unless there is a clarity on the new variant and the hurt it can inflict on the economy in the near term.”