The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) will announce its policy decision shortly. The bi-monthly monetary policy meeting kicked off on June 6 and RBI Governor Shaktikanta Das will announce the result at 10 a.m.
The main objective of the MPC is to keep inflation at 4 percent. However, the range of 2 to 6 percent is considered the RBI tolerance limit.
Between May 2022 and February this year, the repo rate increased 250 bp to 6.5%. In April, the MPC decided to hit the pause button on rate hikes. RBI Governor Shaktikanta Das stressed that this was a pause and not a turn, while retaining the possibility of further adjustment.
CPI-based inflation, the main yardstick for monetary policymaking, eased in April to an 18-month low of 4.7 percent year-on-year (YoY) (from 5.7 percent YoY in March), well within the target band of 2-6 percent of the RBI.
February 10, 2022
The war in Ukraine had not broken out when the MPC announcement was made in February. The repo rate was unchanged at 4 percent. Real gross domestic product (GDP) growth for fiscal year 23 was projected at 7.8 percent. CPI inflation for the year was projected at 4.5 percent.
“Overall, given the inflation and growth outlook, in particular the comfort provided by the improving inflation outlook, the uncertainties related to Omicron and global contagion effects, the MPC considered that continued support from policies for a lasting and long period”. based on recovery,” Das said.
The war in Ukraine started in the last week of February. However, the RBI decided to keep the repo rate at 4 percent. The GDP growth forecast was lowered to 7.2 percent in fiscal year 23. The inflation forecast was raised to 5.7 percent. The average price of crude oil was taken to be $100 per barrel.
Due to high inflationary pressures from the war in Ukraine, the RBI held an off-cycle meeting in May and decided to raise the repo rate by 40bp to 4.4 percent. In March, retail inflation was 7 percent.
“…the strengthening of inflationary impulses in sync with the persistence of adverse global price shocks poses upside risks to the inflation trajectory presented in the April MPC resolution,” Das said.
June 8, 2022
In April, retail inflation was registered at 7.79 percent. In May, it was still above 7 percent at 7.04 percent. In June, RBI announced a further 50 basis point repo rate hike to 4.9 percent.
The GDP growth forecast remained at 7.2 percent. The average crude oil price assumption was changed to $105 per barrel, and the FY23 inflation forecast was also raised to 6.7 percent. This was considerably higher than the 5.7 percent announced in April.
“With no resolution to the war in sight and upside risks to inflation, prudent monetary policy measures would ensure that the second-round effects of supply-side shocks on the economy are contained and that expectations of long-term inflation remain firmly anchored and inflation gradually aligns near target,” Das said during the announcement.
August 5, 2022
Inflation fell below 7 percent in July. However, core inflation continued to remain elevated. RBI continued to raise the rate, raising the repo rate by 50bp to 5.4 percent. However, he said he would focus on “accommodation withdrawal” to control inflation.
The GDP and inflation forecast for fiscal year 23 remained at 7.2 percent and 6.7 percent, respectively.
After a brief respite, inflation returned to 7 percent in August. RBI raised the repo rate again by 50 basis points to 5.9 percent and said it would remain “focused on removal of accommodation.”
The GDP growth forecast was lowered to 7 percent. The inflation forecast remained at 6.7 percent. However, the average crude oil price assumption was lowered to $100 per barrel.
December 7, 2022
A 35 bp increase brought the repo rate to 6.25 percent. The inflation forecast has been kept at 6.7 percent, but the GDP growth forecast has been lowered further to 6.8 percent.
“GDP growth in India remains resilient and inflation is expected to moderate, but the battle against inflation is not over. Pressure points from persistently high core inflation and food inflation exposure to factors international and weather-related events remain,” Das said. .
Das announced another 25bp rate hike, raising the key benchmark to 6.5%. The MPC decision was split 4-2. Das also announced that the MPC has decided to focus on withdrawing the “accommodative stance” as “the situation does not look so bleak now.”
For the first time since May 2022, the RBI MPC decided to pause rate hikes. Das said they are not ruling out the possibility of another rate hike, but will see the impact of previous ones before opting for another hike.