RBI Monetary Policy Live: Shaktikanta Das Spells Out Policy In Seven Points

India's six-member Monetary Policy Committee voted to keep the repo rate unchanged in its first meeting of the new fiscal, but the Reserve Bank of India has shifted its focus to inflation control. The rate-setting panel also maintained a status quo on the reverse repo rate.

The MPC also remained accommodating in its stance while focusing on withdrawal of accommodation to ensure that inflation remains within the target while supporting GDP growth.

Following the review:

• The repo rate stands unchanged at 4%.

• The monetary policy stance remains accommodative.

• The reverse repo rate is unchanged at 3.35%.

• India's inflation forecast revised to 5.7% in FY23.

• India's GDP growth projection revised to 7.2% for FY23.

Watch RBI Governor Shaktikanta Das' speech annoucing the MPC decision here. For the key takeaways, click here.

(Corrects an earlier version that misstated the reverse repo rate.)

The Monetary Policy Committee voted to keep the repo rate unchanged.

That status quo on policy rates, however, came with a number of 'buts'.

Stripped of all those complexities, the effective takeaway is this—the Reserve Bank of India has raised rates and is now more worried about inflation than growth. (read more)

The Reserve Bank of India is in position to start off with pilot projects on its central bank digital currency, or digital rupee, Deputy Governor T Rabi Sankar says.

"[We] Will start with a calliberated approach, in a non-disruptive manner," Sankar says. "...will probably start with the wholesale piece since it is easier to implement."

"Industry groups and banks are talking to us about the trade payment disruptions due to the Ukraine war," RBI Deputy Governor T Rabi Sankar says. "We are still discussing options... Once we have arrived at a solution, you will come to know about it."

The Reserve Bank of India is internally looking at the know-your-customer issues at regulated entities, Deputy Governor M Rajeshwar Rao says.

"We will continue to monitor the developments... If any action is necessary, [it] will be taken," he says. "...have to ensure that any actions taken by the RBI are taken under PMLA (Prevention of Money-Laundering Act) rules."

The Reserve Bank of India has received a proposal from HDFC Ltd. and HDFC Bank Ltd. for their proposed merger, Das says.

"The proposal is under consideration. We will examine it under prevailing guidelines," he says. "Once a decision is taken we will be making the appropriate announcements."

An orderly evolution of the yield curve is always a public good, Governor Das says. "We will be watchful of this orderly evolution."

The move to increase the HTM limits to 23% is a first measure, he adds. Whatever measures are further required will be taken from time to time.

"Hawkish or dovish, I will not like to enter into that," Governor Das says, adding that he doesn't think the RBI is behind the curve at all.

"Very often India's monetary policy is compared with advanced economies. Please remember advanced economies are on the reduction of the bond purchase programme. We stopped G-SAP last year in October," he says.

Have to be mindful when we use terms like "behind the curve", Patra says. "I found that the term originates from a documentary on people in the U.S. who still believe that the world is flat."

Fixed rate reverse repo is there because we are not taking any option off the table, Patra says. Liquidity management will be with the LAF, where there is SDF, MSF and the repo rate at the centre. "If we find a purpose for the reverse repo, we will announce what we will do with it," Patra says.

• The Monetary Policy Committee has maintained the reverse repo rate at 3.35%.

Whatever action is warranted will be taken to control inflation, and all our actions will be tailored accordingly, Das says, adding that the broad thrust of the monetary policy and statement is sufficiently clear.

The RBI had taken policy repo rate to an all-time low of 4%. That was ultra accomodation, which we want to withdraw now, RBI Deputy Governor Michael Patra says.

The central bank still has scope to be accomodative, he says.

"Suppose the situation changes, the introduction of SDF enormously increases the RBI's ability to stabilise capital flows and keep monetary expansion in check," Patra says.

There are seven things which we have done in this policy announcement, RBI Governor Shaktikanta Das says.

• Revised inflation due to war-induced factors and revised growth projections.

• In sequence of priorities have put inflation before growth.

• Stance continues to be accomodative while focussing on withdrawal of the accomodation which has been there for more than two years.

• LAF corridor has been normalised to 50 basis points.

• SDF has been introduced and will be bottom of the corridor.

• Announced that liquidity withdrawal will be done over a multi-year timeframe.

• Situation is dynamic and fast-changing and all our actions will be tailored accordingly.

RBI Governor Shaktikanta Das will address the media in the first in-person press conference in more than two years. Members of the Monetary Policy Committee and deputy governors of the central bank are also in attendance.

India’s 10-year bond yield rose to more than 7%—the highest since 2019—as the Reserve Bank of India raised its inflation forecast and narrowed the interest rate corridor with a new mechanism. The rupee strengthened against the U.S. dollar.

The Reserve Bank of India will extend the directions on maintaining risk weights against individual home loans.

“Recognising the importance of the housing sector, its multiplier effects and its role in supporting the overall credit growth, it has been decided that the risk weights as prescribed in the circular will continue for all new housing loans sanctioned up to March 31, 2023,” the central bank said in a statement on developmental and regulatory policies.

• Risk weights against a loan refer to the capital charge against it. Lower risk weights allow banks to extend more loans in that specific sector, as they are less capital-intensive.

Previously, the risk weights were linked to the size of the loan and the loan-to-value ratio. In October 2020, the banking regulator linked risk weights against individual home loans only to the loan-to-value ratio. The norms were effective till March 31, 2022. (read more)

The Reserve Bank of India has 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.

The decision to operationalise the facility, which has been under discussion since 2014, comes at a time banks are parking a record amount of funds at the RBI’s reverse repo window.

• The standing deposit facility will be activated at 25 basis points below the repo rate of 4%. This will now act as the floor of the interest rate corridor.

• The marginal standing facility will continue to be offered at 25 basis points above the repo rate.

• As such, the width of the interest rate corridor stands restored at 50 basis points.

The fixed rate reverse repo remains at 3.35% and will remain part of the RBI's toolkit, the banking regulator said. A bulk of the liquidity withdrawal will continue to happen through variable rate reverse repo operations. (read more)

The Reserve Bank of India is not hostage to any rule book, no option is off the table when the need of the hour is to safeguard economy, Das says.

"The sky today maybe overcast with clouds but we will use all our energy and resources to let the sunlight illuminate India's future," he says.

The system of cardless cash withdrawal will be made available across all banks and ATM networks using UPI, says RBI governor. Net worth requirement for Bharat Bill Payments System Operating Units lowered from Rs 100 crore to Rs 25 crore.

Rationalisation of risk weights for individual housing loans to be extended till March 31, 2023, says the RBI governor.

• Held-to-maturity limit on SLR enhanced from 22% to 23% of NDTL till Mar 31, 2023.

• HTM limits to be restored to 19.5% in a phased manner starting from quarter-ending June 2023.

MSF and SDF will be available from 5:30 pm to 11:59 pm on all days of the week, through the year, the RBI governor satys.

Fixed rate reverse repo retained at 3.35%, remains part of RBI’s toolkit, the RBI governor says. Fixed rate reverse repo operation will be at discretion of the central bank, he says.

• Repo rate held at 4%

• Reverse repo rate held at 3.35%

• Standing deposit facility activated; rate at 25 basis points below repo rate.

• Marginal standing facility rate at 25 basis points above repo rate.

The Reserve Bank of India has tweaked its liquidity framework, introducing the standing deposit facility through which it will absorb surplus liquidity. While the reverse repo window remains, it will no longer be an active part of liquidity management.

"RBI will continue two-way liquidity management approach of VRRR auction of varying maturities and VRR auctions," Das says.

• 80% of liquidity being absorbed at rate close to the repo rate.

• Have prepared market for normalisation of LAF corridor over last several months.

Both ends of LAF corridor to have standing facilities, one to absorb liquidity and the other to inject liquidity, depending on the evolving financial market conditions, says RBI governor.

• SDF rate will be 25 bps lower than policy rate, to absorb liquidity.

• MSF rate will continue to be 25 bps above the repo rate, to inject liquidity.

Various liquidity measures have left an overhang of about Rs 8.5 lakh crore, says RBI governor.

• Will engage in gradual, calibrated withdrawal of excess liquidity over multi-year timeframe in non-disruptive manner beginning FY23

• To restore size of liquidity surplus to level consistent with prevailing stance of monetary policy.

The Reserve Bank of India will use all policy levers to enhance resilience of the Indian economy, Governor Das says.

"(The RBI) Will continue to adopt nuanced and nimble-footed approach to liquidity management, while maintaining adequate liquidity in system," he says.

The Reserve Bank of India has revised India's inflation forecast to 5.7% in FY23 — 6.3% in Q1, 5% in Q2, 5.4% in Q3, and 5.1% in Q4. Inflation projections assume crude oil at $100/barrel in FY23.

Geopolitical tensions have upended previous inflation narrative, clouded inflation outlook for FY23, Das says. A record rabi harvest would help keep prices of cereals and pulses in check. Unprecedented high international prices of wheat could put floor on domestic prices.

The Reserve Bank of India has revised lower India's GDP growth projection to 7.2% for FY23. The central bank sees 16.2% real GDP growth in Q1FY23, 6.2% in Q2, 4.1% in Q3, Q4 at 4%. Growth projections assume crude oil at $100/barrel in FY23.

According to RBI surveys, consumer confidence is improving, household optimism in outlook on year ahead has strengthened, Das says. Business confidence in optimistic territory and is supportive of revival in economic activity.

External developments of last two months have materialised downside risks to domestic growth and upside risks to inflation projections, says RBI governor.

"Inflation is now projected to be higher, and growth projected to be lower than assessment made in February," he says. "Several high-frequency indicators posted robust YoY expansion during February-March 2022."

"Rise in commodity costs have ratcheted up projections of global inflation, sizeable impact on output across geographies," says the RBI governor. Input costs pressures are now expected to linger longer.

The MPC decided to keep repo rate at 4%.

MPC has decided to remain accommodating while focusing on withdrawal of accommodation to ensure that inflation remains within the target while supporting growth, said RBI governor Shaktikanta Das.

Investors will be looking for clarity on how the RBI—which acts as the government’s debt manager, in addition to its main role of maintaining price stability—plans to support the administration’s Rs 14.31 lakh crore debt programme and keep the sovereign’s borrowing costs in check when faster global policy normalisation is pushing yields higher.

Also Read: MPC’s Dilemma: Is Output Gap Closing, Embedding Inflation?

Sensex and Nifty opened higher ahead of the Monetary Policy Committee's repo rate decision that is scheduled to be announced by RBI Governor Shaktikanta Das at 10:00 a.m. today.

The Reserve Bank of India will also adjust the growth forecast for 2022-23, lowering it by a few notches to 7.5% or more from the 7.8% expansion seen in February, according to Ananth Narayan, a senior India analyst at Observatory Group.

Also Read: RBI Monetary Policy: Three Questions On Mapping The Turn

With inflation already running above the central bank’s 6% upper tolerance limit, the RBI is expected to bump up its 4.5% inflation forecast for the current fiscal year to factor in risks from higher global food and energy prices due to the war in Ukraine.

Also Read: Dear RBI, Beware The Inflation Ides Of March

Das’ speech will be closely watched for any change in language that signals a beginning of the end of the current easing bias. Since October 2019, the RBI has said it will “continue with the accommodative stance as long as it is necessary to revive growth,” adding from March 2020 a reference to Covid-19.