The Monetary Policy Committee continuing with the accommodative policy stance was one of the prime reasons cited by Governor Shaktikanta Das for not hiking the reverse repo rate at Thursday's policy review.
Das also said that the weighted average rate for reverse repo moved up to 3.87 per cent on February 4, as against 3.37 per cent in August 2021, hinting that the narrowing of the rate corridor – the difference between the repo at which it lends and the reverse repo at which it absorbs excess funds from banks - has already happened courtesy the RBI's liquidity measures.
Ahead of the policy, many watchers were expecting a hike in the reverse repo rate, which would have suggested the start of the normalization process. The expenditure expansionary budget, concerns about inflation in the near future because of surging oil prices and the actions of other central banks globally were the other factors cited.
In his post-policy interaction with the media, Das said that the rates represent a particular stance with regard to the monetary policy and the committee decided to continue with the accommodative stance.
"When the stance continues, we did not see any reason to make any changes or tamper with the rates," he said.
On the issue of other central banks' actions, Das said monetary authorities across the world are in "divergent" modes as guided by their individual domestic situations, and added that the RBI has also kept the domestic requirements in mind before arriving at the decision. Additionally, the character of inflation – which continues to be high in India and is likely to test the upper tolerance of RBI soon – is different from the ones in other economies, Das said.
Deputy Governor Michael Patra pointed out that the inflationary pressures in the US are due to factors like a surge in used car prices or truckers in Europe, which do not affect us in India.
Similarly, there is no inflation on wages or rentals being seen in India which is playing into the core inflation front, unlike other countries, Patra added. Unlike the US Fed, which gives dot plots on things it is watching, the RBI takes a calibrated call on rates, Das said.
The RBI is not "falling behind the curve" given the domestic situation on inflation and growth, Das said. When asked about inflation projections, Das sounded confident about the 4.5 per cent estimate for FY23, saying the same has been arrived at after a lot of rigour and also considering the worst-case scenarios.
He, however, did not answer a specific question on what is the assumed price of global crude while baking the estimate, or also the impact of a rise in domestic fuel prices as a result of those.
The projections are “realistic” and also keep in mind that the “credibility” of the central bank is at stake, Das said.
To a question on whether the RBI has sought the government's intervention to further reduce the excise on petroleum products given the threat to inflation once the prices are increased after the state elections, Das said he cannot divulge the communication between the central bank and the government on inflation-related aspects. Going ahead, the RBI would like to be "calibrated and well-telegraphed" on its rates stance, both Das and Patra said.
On growth, he said the process is positive and the momentum is indeed picking up, but the GDP growth figure has an impact on the base effects due to which the number may look high or low.
He welcomed the budget for taking a calibrated stance by focusing on capital expenditure given difficulties such as challenges on private consumption and also continuing on the fiscal consolidation path as earmarked earlier.
The monetary and fiscal policies will be working in a coordinated manner, and the former will not pass on the baton to the latter and stand still, Das made it clear.
To a question on the spike in government bond yields after the budget, Das wondered if the market participants felt that the inflation outcomes will be higher which led to the rise in the yields, and asserted that the cancellations or devolvement at bond auctions represent the RBI stance on such matters. When asked to elaborate on the comments in his written statement, where he asked market participants to act responsibly for collectively beneficial outcomes, Das said the RBI has regular interactions with the market and urged the market to convey any reservations to the RBI.
Meanwhile, Patra said the RBI expects its liquidity moves to play smoothly on the market, adding that there have been no issues in the past as well because of it.
