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RBI holds key rates but starts policy normalisation

April 08, 2022

RBI holds key rates but starts policy normalisation
As expected, the Reserve Bank of India (RBI) kept its key lending rate at a record low as the monetary policy committee (MPC) chose to keep the repo rate unchanged at 4%. The opposite repo rate, or the key borrowing rate, was additionally kept unchanged at 3.35%.

While the RBI’s rate-setting panel kept its accommodative position, it also voted unanimously to focus on “withdrawal of accommodation to ensure that inflation remains within the target going ahead, while supporting growth.”
 
The central bank, however, said it would restore the width of the liquidity adjustment facility (LAF) corridor to 50 basis points, which was viewed as an initial step to move away from the ultra-loose monetary policy embraced during the COVID-19 pandemic.
 
“The RBI has answered both to the new inflation and growth challenges that have arisen due to geopolitical pressures that have manifested themselves in rising commodity prices. While the RBI kept its monetary policy stance unchanged, it restored the policy corridor to pre-pandemic levels and gave a responsibility towards a sluggish reduction of liquidity going forward,” Abheek Barua, Chief Economist, HDFC Bank.
 
The RBI slashed the GDP growth projection for the current fiscal to 7.2% from 7.8% prior, while raising the CPI inflation forecast to 5.7% from 4.5%.
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