RBI - MPC April 2022 - Acuité Ratings
Mr. Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, comments on RBI- MPC- April 2022.
"The first MPC meeting of FY23 has started on an important note with RBI providing clear signals on the exit from accommodative monetary policy in the near future while retaining the accommodative stance for now along with status quo on the repo rate. While the fixed reverse repo rate will continue to be at 3.35%, the 'standing deposit facility' (SDF) which will absorb liquidity at 3.75%, will now effectively serve as the floor for the LAF corridor. With MSF at 4.25%, the LAF corridor has been restored to 50 bps. In our opinion, these announcements indicate the impending rise in repo rate over the next 1-2 policy meetings and may start to get reflected in a hike in banks' deposit rates in the near term.
As expected, MPC has revised its inflation and growth forecast for FY23 upwards to reflect the new economic realities consequent to the flare up of the Russia-Ukraine conflict. RBI's new CPI projection for FY23 stands at 5.7% vis-à-vis 5.9% for Acuité Ratings which we still believe will carry an upward bias given the low likelihood of a cooling of crude oil and other commodity prices in the near term. On the other hand, the growth forecast has been revised downwards to 7.2% to reflect the increased risks to the global growth outlook.
The third important aspect in the policy statement is the communication on RBI's support to the government borrowing programme in the current year through various monetary tools which may include OMO/OTs. Further, the HTM limit for commercial banks have been further hiked from 22% to 23% up to Mar-23 to facilitate the absorption of the increased bond supply.
Acuité believes that RBI has finally bitten the bullet and provided increased clarity on its monetary stance going forward. The increase in the repo rate and the change in the stance from accommodative to neutral can happen as early in Jun-22 depending on the inflation and the growth data. In our opinion, the market can brace for a 50 bps repo rate hike for the current financial year."