RBI keeping all options open due to uncertainty on the economic front

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At the bi-monthly review meeting of the Monetary Policy Committee (MPC) last week, it was decided to keep the policy rates unchanged. This was already expected. The Reserve Bank of India's (RBI) Committee on Policy Rates has not made any change in the policy repo rate and has decided to maintain its moderate stance unless there is a need to support economic growth. There was no discussion about the gradual withdrawal of special incentives at the policy level. The committee also did not change its stance on the macroeconomic situation. But with the spread of the new form of the Covid-12 virus, Omicron, uncertainty has increased.

According to the committee, India's economic growth rate is expected to be 7.5 per cent in the current financial year. Inflation is projected to average 4.5 per cent this year. According to the committee, inflation is expected to reach 7.5 per cent in the fourth quarter, but should come down to 5 per cent in the first six months of the next financial year.

However, as inflation has moderated in recent months and the RBI is expected to remain in a comfortable range, real policy rates may remain negative. Headline inflation remains elevated and is close to the upper 5%. The next quarter could see a recovery in the economy and a surge in demand, with retail inflation expected to pick up. In this regard, the RBI is also gradually focusing on measures to reduce excess liquidity in the financial system.

The central bank has increased the size of the variable rate reverse repo (VRRR) auction. On December 6, VRRR withdrew Rs 6 lakh crore from the financial system. The RBI wants to increase this figure to Rs 2.5 lakh crore by the end of this month. The central bank primarily seeks to withdraw additional cash through auctions and to slow down the process of withdrawing cash through fixed-rate reverse repo. With less liquidity in the financial system, short-term rates will increase and thus the Reserve Bank will be able to withdraw incentives without any interruption. The central bank is in a position to do so as the average reverse repo rate in India is currently 7.5 per cent.

The growth rate may slow down in the last quarter of the current financial year and will pick up again in the first quarter of the next financial year due to low support.

Economic activity was affected by the second wave of the Kovid epidemic in the first quarter of the current financial year. Monetary policy Credit policy has played an important role in strengthening the economy. It would be better if the Reserve Bank now took the initiative to normalize the situation at the policy level. This will also make it easier for the central bank to focus on price stability. From now on, the role of the government in directing economic development will be more effective. Excessive reliance on monetary policy can increase risk. In short, it is important to focus on economic growth in the near future.

Comments

  1. Finance and AccountsAugust 10, 2022 at 5:11 AM

    Within 180 days of the application's receipt, the RBI must decide how to proceed with the compounding of violation compound application that was submitted to it. similar to above, subject to a limit of Rs. 2 lakhs. In the case of the project office, the amount of the violation shall be At 10% of the project's overall cost.

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