RBI raises key policy rates in its Bi-Monthly Policy statement

RBI governor Shaktikanta Das announced the second bi-monthly monetary policy for FY2023. In this monetary policy, the liquidity has been tightened to keep latch on the inflation and to keep it under the band of 4%

Key Points of Monetary Policy Committee:

  • The policy repo rate under the liquidity adjustment facility (LAF) increased by 50 basis points to 4.90%.
  • The Standing Facility deposit rate stands at 4.65%
  • Bank rate at 5.15%
  • Reverse Repo Rate at 3.35%

Factors that assisted MPC to increase the key rates are as follows:-

GLOBAL ECONOMY

The global economy continued to grapple with multi-decadal high inflation and slowing growth, persisting geopolitical tensions and sanctions, and elevated prices of crude oil and other commodities.

DOMESTIC ECONOMY

  • In Q4:2021-22, real GDP growth decelerated to 4.1% from 5.4 %in Q3, dragged down mainly by weakness in private consumption on the back of the Omicron wave.
  • Urban demand is recovering and rural demand is gradually improving.
  • Money supply (M3) and bank credit from commercial banks rose (y-o-y) by 8.8% and 12.1%, respectively, as of May 20, 2022.
  • CPI headline inflation rose further from 7.0% in March 2022 to 7.8% in April 2022.

PROJECTIONS BY MPC

  • Inflation is now projected at 6.7% in 2022-23, with Q1 at 7.5%; Q2 at 7.4%; Q3 at 6.2%; and Q4 at 5.8%.
  • The real GDP growth projection for 2022-23 is retained at 7.2%, 3 with Q1 at 16.2%; Q2 at 6.2%; Q3 at 4.1%; and Q4 at 4.0%.

The monetary policy didn’t have much impact on the market as the Nifty continued to trade in a sideways manner and red zone for the second consecutive day. Nifty is currently trading at 16435.45 merely up by 19 points from last day’s close of 16416.35.

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