Reserve Bank of India’s (RBI) six-member monetary policy committee (MPC) voted to keep the policy repo rate unchanged at 4 per cent and decided to focus on withdrawal of accommodation to ensure inflation remains within the target while also supporting growth. The RBI has revised its inflation forecast upwards and sharply cut its economic growth projections in the current financial year.

It has projected inflation at 5.7 per cent in 2022-23, with 6.3 per cent in Q1, 5.8 per cent in Q2, 5.4 per cent in Q3, and 5.1 per cent in Q4. The Gross Domestic Product (GDP) growth for 2022-23 is predicted at 7.2 per cent, with Q1FY23 at 16.2 per cent; Q2 at 6.2 per cent; Q3 at 4.1 per cent; and Q4 at 4.0 per cent. Both the projections are based on the assumption that crude oil will be at $100 per barrel during the year.

“It should be noted that the excessive volatility in global crude oil prices since late February and the uncertainty of the evolving geopolitical tensions, any projection of growth and inflation is full of risk and depends upon future oil and commodity price developments”, Shaktikanta Das, Governor of RBI said in a statement.

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The RBI has also decided to reset the width of the liquidity adjustment facility (LAF) corridor to 50 bps. The base of the corridor will now be given by the newly instituted standing deposit facility (SDF) and most likely will be placed 25 bps below the repo rate of 3.75 per cent. “By eliminating the binding collateral restriction on the central bank, the SDF strengthens the operating framework of monetary policy. Accordingly, it has now been decided to introduce the SDF as the base of the LAF corridor,” Das added.

“This would provide symmetry to the operating framework of monetary policy by introducing a SAF at the bottom of the LAF corridor, similar to the standing injection tool at the upper end of the corridor. Thus, at both ends of the LAF corridor, there will be standing facilities, one to absorb and the other to inject liquidity,” Das said.