Inflation projections compared to international crude oil prices, says Shaktikanta Das
RBI Monetary Policy Live Updates:
The Reserve Bank of India (RBI) on Thursday kept the benchmark repo interest rate unchanged at 4% while deciding to maintain its dovish stance amid high inflation. This is the tenth consecutive time that the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das has maintained the status quo. The RBI had last revised its repo rate or short-term lending rate on May 22, 2020 in an off-policy cycle to boost demand by bringing the interest rate down to an all-time low. It was the MPC’s first meeting after the 2022-23 budget was presented to Parliament on February 1.
MPC has decided to keep the benchmark repo rate at 4%, Das said when announcing the bi-monthly monetary policy review, the first of the year. Therefore, the reverse repo rate will continue to earn 3.35% interest to banks for their deposits with the RBI.
Das said the MPC voted unanimously to keep interest rates unchanged and decided to maintain its dovish stance for as long as needed to support growth and keep inflation on target.
RBI maintained its growth projection at 9.2% and inflation at 5.3% for the current financial year.
Retail price inflation hit a five-month high of 5.59% in December, from 4.91% in November, mainly due to higher food prices.
MPC was mandated to keep annual inflation at 4% until March 31, 2026, with an upper tolerance of 6% and a lower tolerance of 2%.
The fortnightly policy comes against the background of the budget in which a gross nominal GDP of 11.1% has been estimated for 2022-23.
The government expects this growth to be fueled by a massive capital spending program outlined in the budget to attract private investment by invigorating economic activity and creating demand.
Finance Minister Nirmala Sitharaman has increased capital expenditure (capex) by 35.4% for the financial year 2022-23 to Rs 7.5 lakh crore to continue the recovery of the pandemic-stricken economy thanks to to public investment. The capex for the current fiscal year is set at Rs 5.5 lakh crore.
Spending on the construction of multimodal logistics parks, metro systems, highways and trains is expected to create demand for the private sector, as all projects must be implemented by contractors.
On borrowing, the government plans to borrow a record Rs 11.6 lakh crore from the market in 2022-23 to meet its spending needs to support the economy. This is nearly Rs 2 lakh crore more than the current year budget estimate of Rs 9.7 lakh crore.
Even the gross borrowing for the next financial year will be the highest ever at Rs 14,95,000 crore against Rs 12,05,500 crore in the Budget Estimate (BE) for 2021-22.
The budget deficit – the excess of government spending over revenue – is expected to fall to 6.4% of GDP next year, from 6.9% in the current fiscal year ending March 31.
(Edited by : Ajay Vaishnav)
First post: STI