RBI Monetary Policy February 2022 has announced on Thursday. The Reserve bank kept the interest rate unchanged to 4% and decided to continue with its accommodative stance in the backdrop of an elevated level of inflation, announced by RBI Governor Shrikanta Das in the MPC meeting.
He added that RBI will maintain an accommodative stance and will continue with it as long as necessary for a ‘durable and board-bases recovery’, citing concerns over inflation and COVID-19 omicron variant.
According to the reports, RBI is expected to grow at 7.8% for the Fiscal year 2022-23. On the other hand, the CPI (Consumer Price Index) inflation is 4.5% for the upcoming fiscal year. In respect to this, the governor of RBI stated that “Overall taking into consideration the outlook for inflation and growth, in particular the comfort provided by improving inflation outlook, the uncertainties related to omicron and global spillovers, the MPC was of the view that continued policy support is warranted for a durable and broad-based recovery.”
The repo and reserved repo rates have been left unchanged at 4% and 3.35%, respectively, the announcement made by six RBI board members, headed by RBI Governor Shaktikanta Das.
The one thing that surprised the most economists and market participants in the repo rate was retained repo rate of 3.5%. This is the rate at which the RBI borrows from banks. The hike in this rate would have meant that the central bank wanted to suck up money from the baking system.
Behind the RBI decision not to hike the rate, there can be one more reason that is the outlook on inflation for the next fiscal year.
If we talk globally, the banks have been tightening the monetary policy in order to control inflation.
- In the US, Jerome Powell, the Federal Reserve Chairman, signaled last week that the US Central bank would begin raising interest rates by March.
- The Bank of England has already raised the interest rates to 0.5%.
- The Brazilian central bank recently increased its benchmark interest rate by 1.5% points to 10.75 % and is expected to increase in the next meeting.
- In Europe, the central bank remains its key interest rate unchanged but signalled to elevate later this year.
Will RBI think about increasing its interest rate later this year? Let’s see!