Informist, Friday, Apr 8, 2022

MUMBAI - Following are the highlights of Reserve Bank of India's Monetary Policy Committee first bi-monthly meeting for FY23, and comments of top central bank officials, led by Governor Shaktikanta Das, at the post policy conference today:  

KEY TAKEAWAYS
* MPC leaves repo rate unchanged at 4.00%
* Reverse repo rate left unchanged at 3.35%
* MPC retains accommodative stance
* MPC unanimously voted for unchanged policy rate
* MPC unanimously voted for accommodative stance 
* SDF introduced, to be floor of policy corridor
* To restore LAF corridor to pre-COVID level of 50 bps
* To stay accommodative while focussing on accommodation withdrawal
* Inflation projected to be higher, growth lower
* CPI seen higher, GDP lower in FY23 vs Feb projections
* Any projection for GDP, CPI fraught with risks
* To restore opening time of financial markets from Apr 18
* FX reserves are at very comfortable levels
* Reassured by large buffers built over last few years
* Ebbing Omicron wave impact offset by geopolitical tension
* Supply disruptions rattled commodity markets
* Risk aversion towards emerging market economies has increased
* RBI approach needs to be cautious but proactive
* Successfully navigated through turbulent waters
* Responded with unconventional steps to negate COVID impact
* Approach needs to be cautious but proactive
* Ensured actions are nimble
* Not hostage to any rule book, no action off table
* Sky overcast, but will make efforts to make sun shine

GROWTH
* FY23 real GDP seen at 7.2%
* Apr-Jun GDP growth seen 16.2%
* Jul-Sep GDP growth seen 6.2%
* Oct-Dec GDP growth seen 4.1%
* Jan-Mar FY23 GDP growth seen 4.0%
* GDP projection assumes crude oil price at $100/bbl
* Downside risk to GDP projections on external developments
* Indian economy steadily reviving from pandemic impact
* Conflict in Europe has potential to derail global economy
* RBI stands resolute to defend Indian economy
* Ukraine war could impede economic recovery
* Key drivers of domestic demand remain subdued
* Noticed gradual turnaround in Feb; Mar was mixed
* Business confidence in positive territory
* Survey shows consumer confidence is improving
* Some contact-intensive got traction amid lower COVID cases
* Geopolitical issues exacerbated amid global economic recovery
* Invest activity may gain traction
* Resurgence in COVID cases in some nations a risk to global economy
* Global economy has seen tectonic shifts
* Pickup in contact-intensive services may boost urban demand
* Robust rabi output to support rural demand
* Economic outlook shadowed by geopolitical tensions
* To use all policy levers to ensure macroeconomic stability
* Seeing significant improvement in external sector
* See CAD at sustainable levels despite high commodity price
* Expect CAD to remain at sustainable levels
* Braced up to defend Indian economy
* Conflict in Europe poses challenge to global outlook

INFLATION
* FY23 CPI seen at 5.7%
* Apr-Jun CPI inflation seen at 6.3%
* Jul-Sep CPI inflation seen at 5.0%
* Oct-Dec CPI inflation seen at 5.4%
* Jan-Mar FY23 CPI inflation seen at 5.1%
* Crude price spike poses substantial upside risks to CPI
* Global food, metal prices hardened significantly
* Spike in crude prices poses substantial risk to CPI
* Spike in crude prices pose impact in direct, indirect ways
* Severe volatility in oil price may impact commodity prices
* Edible oil prices expected to remain high in near term
* Geopolitical tensions upended earlier CPI narrative
* Global supply chain disruption expected to linger
* Saw geopolitical worry when world grappling with inflation

FINANCIAL MARKETS
* Extreme volatility characterises commodity, financial markets
* Financial markets likely to remain volatile
* Policy response to be recalibrated on dynamic outlook
* To continue with nuanced, nimble approach to liquidity
* To take nuanced, nimble approach on liquidity
* Will maintain adequate liquidity in the system
* Have prepared the market for several months on liquidity
* To hold VRRR, variable rate repo auctions as liquidity operations
* Normalisation of LAF corridor should not come as surprise
* To fully reinstate liquidity management framework
* To institute SDF as floor of LAF corridor
* Financial market conditioned to normalisation of LAF corridor
* Access to standing facilities at the discretion of banks
* MSF rate at 4.25%, upper end of LAF corridor
* SDF rate at 3.75%, lower end of LAF corridor
* SDF strengthens operating framework of monetary policy
* Standing facilities available at both ends of LAF corridor
* SDF introduction further strengthens fincial stability
* SDF rate to be 25 bps below policy repo rate
* SDF to ensure proper, appropriate liquidity mgmt
* SDF financial stability tool, not just for liquidity management
* SDF will be applicable to overnight deposits at this stage
* Fixed rate reverse repo retained at 3.35%
* FRRR, SDF to impart flexibility to RBI's liquidity management 
* MSF, SDF will be available 1730 to 2359 IST on all days
* So far 5 trln rupees of excess liquidity has returned
* To withdraw excess liquidity over a multi-year timeframe
* Liquidity measures to be withdrawn over multi years
* RBI-regulated markets to open at 0900 IST from Apr 18
* To withdraw excess liquidity in non-disruptive manner
* Will engage in gradual withdrawal of liquidity measures
* To deploy various tools as warranted to facilitate govt borrow
* CAD seen at sustainable levels
* Committed to ensure availability of adequate liquidity
* Focused on completion of borrowing programme of govt
* To deploy tools as warranted for govt borrow
* To enhance HTM limit under SLR to 23%
* To reduce liquidity overhang over a multi-year timeframe
* To announce 6-7 additional measures
* To take steps as needed to contain global spillovers

FINANCIAL SECTOR
* Easier risk weight for housing loans extended till Mar 31
* To set up panel to study customer services at all regulated entities
* Panel to review customer services in regulated entities
* To form panel on customer services in all regulated entities
* Cardless cash withdrawal services to be through UPI
* Propose to have cardless cash withdrawal at all ATMs
* Last two years have seen turbulence of epic proportions
* To issue cybersecurity guidelines for payment systems
* To issue paper on climate risk, sustainable finance

COMMENTS BY TOP OFFICIALS

SHAKTIKANTA DAS
* Prioritising inflation before growth after 3 years
* Inflation projection revised up due to war-induced factors
* Gradually moving away from accommodation
* Have put inflation before growth as priority
* Liquidity withdrawal to be multi-year timeframe
* Liquidity withdrawal timeframe after much deliberation
* Situation dynamic, fast changing, so actions will be tailored
* Tectonic shifts have happened globally since February policy
* Stance accommodative with focus on withdrawal of accommodation
* No proposal to allow non-banks to access SDF right now
* All instruments on the table
* Watchful of emerging trends, Ukraine war, commodity price
* We are watchful on inflation
* Broad thrust of policy is to act as per emerging situation
* Thrust of MPC sufficiently clear
* Don't want to freeze my options
* Will be watchful of yield curve, government borrowing programme
* SDF gives greater flexibility for monetary policy objectives
* If MPC hikes repo rate, then MSF, SDF will move in tandem
* "Hawkish or dovish a media formulation"
* Don't think RBI behind the curve at all
* Have been very watchful with regard to rates
* G-SAP stopped in Oct, outright OMOs have been far less
* Pricing of risk purely banks' judgement call
* Reiterates yield curve a public good
* Will be watchful of implementation of government's borrowing plan
* HTM hike initial step in managing government borrowing
* Got proposal on HDFC-HDFC Bank merger; under consideration
* Capacity utilisation has improved but output gap still there
* Output gap there, but it is narrowing
* On Russia oil: Won't do anything that goes against sanctions
* Need to be watchful of commodity prices
* No one knows how commodity prices will move
* Supply side steps on inflation are in government's domain
* On government borrowing: To announce more steps as and when needed
* Took current fuel prices for CPI projections
* OMOs depend on liquidity, not all drivers in our control

MICHAEL PATRA
* Situation changing, inflation at risk
* To withdraw ultra-accommodation
* SDF enormously enhances ability to sterilise FX flows
* Fixed rate reverse repo retained as no tool off table
* Liquidity management will effectively be with LAF
* Reverse repo has no use for liquidity mgmt as of now
* In surplus liquidity, SDF, VRRR are operative tools
* Started process of withdrawal of accommodation
* Demand in state of repair, but rural weaker than urban

T. RABI SANKAR
* War has disrupted trade and payments
* Remaining sensitive to sanctions on Russia
* Discussing options on payments with Russia
* Central bank digital currency a work in progress
* Not aware of any payment platform on Russia trade
* Ready to start pilot project for digital currency
* To take calibrated steps on central bank digital currency

M. RAJESHWAR RAO
* To finalise digital lending norms after studying comments
* Examining comments on report on asset reconstruction cos

MAHESH KUMAR JAIN
* Doing IT assessment of banks, also special audit if needed

End

Compiled by Vishal Sangani
Filed by Avishek Dutta