- Repo rates are now at 4.40 % after RBI has Increased the rates by 40 basis points to
- MPC will focus on removing accommodating policies, in order to keep inflation within the target range
- India’s external debt-to-GDP ratio remains low@20%
The Monetary Policy Committee (MPC) has resolved, to: Increase the policy repo rate under the liquidity adjustment facility (LAF) by 40 basis points (bps), based on an evaluation of the existing and evolving macroeconomic environment. As a result of the hike, repo rates are now at 4.40 percent, effective immediately. Decision has been taken today i.e., May 4, 2022
The MPC also opted to keep accommodating policies in place while focusing on removing them in order to keep inflation within the target range while also boosting growth.
According to the Governor of the Reserve Bank of India, geopolitical events and recent trade accords have opened up potential market prospects. Major information technology (IT) companies’ strong revenue estimate also bodes favourably for the external sector’s outlook in 2022-23. The current account deficit in 2022-23 may have impact of worsening terms of trade, led by increased commodity prices, although it is likely to be well-financed.
Despite some recent moderation, net foreign direct investment flows have remained strong. Long-term flows led by external commercial borrowings from are likewise stable. India has sizable foreign exchange reserves, with net forward assets providing a robust back-up. At 20%, the external debt-to-GDP ratio remains low.
The overall liquidity of the system remained in a huge surplus. As of April 22, 2022, bank credit has increased by 11.1 percent year over year. India’s foreign exchange reserves fell by US$ 6.9 billion to US$ 600.4 billion in 2022-23 (up to April 22). Headline CPI inflation jumped to 7.0 percent in March 2022, up from 6.1 percent in February, owing mostly to geopolitical spill overs. Food inflation surged 154 basis points to 7.5%, while core inflation grew 54 basis points to 6.4%. The rapid rise in inflation is taking place in a global environment where inflationary pressures are widening.
According to the IMF, inflation in advanced economies would rise by 2.6 percentage points to 5.7 percent in 2022, while inflation in emerging market and developing economies will rise by 2.8 percentage points to 8.7 percent.
The RBI continues to monitor incoming data and information in order to appraise the situation and the outlook on a regular basis. India would take a proactive and adaptable approach. Despite the challenges, Governor Das stated that the foundations of the Indian economy remain robust and India is well positioned to deal with the scenario resulting from global developments. India’s macroeconomic management of the pandemic has resulted in a solid recovery, according to the IMF, and India is in a good position to meet the current external shock.
Staff Galactik Views