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RBI monetary Policy Highlights

8 April2022 • Parikshit Singh

Rates, Targets and Projections
– Accommodative stance continues to revive and sustain growth
– Repo Rate under LAF — Unchanged at 4%
– Reverse Repo Rate — Unchanged at 3.5%
– Standing Deposit Facility Rate — Unchanged at 3.75%
– Marginal Standing Facility (MSF) and Bank Rate — Unchanged at 4.25%
– CPI inflation — targeted at 4%
– GDP Projections — Real GDP growth for 2022-23 is now projected at 7.2% with
– – Q1 at 16.2%
– – Q2 at 6.2%
– – Q3 at 4.1%
– – Q4 at 4.0%
– – Assuming crude oil (Indian basket) at US$ 100 per barrel during 2022-23
– CPI Inflation Projections — projected at 5.7% in 2022-23 with
– – Q1 at 6.3%
– – Q2 at 5.8%
– – Q3 at 5.4%
– – Q4 at 5.1%
– Current Account Deficit (CAD) — A sharp escalation in international commodity prices in conjunction with domestic demand recovery has also led to a strong rebound in imports and a widening of trade and current account deficits

Global Economy
– Global Composite PMI
— Mar 2022: 52.7
— Feb 2022: 53.50

Domestic Economy
– National Statistics Office (NSO) — Second Advances Estimates (SAE)
– Real GDP growth 2021-22 estimates on Feb 28, 2022 — 8.9% (1.9% above pre pandemic levels 2019-20)
– Supply Side GVA (Gross Value Added) — On the supply side, real GVA rose by 8.3% in 2021-22 with its major components including services, exceeding pre-pandemic levels. GDP growth in Q3: 2021-22 decelerated to 5.4%
– Manufacturing PMI — stayed in expansion zone in Mar 2022 at 54.0, moderated from 54.90 in Feb 2022
– Service PMI — Continued to exhibit expansion at 53.6 in March 2022, inched up from 51.8 in Feb 2022
Capacity Utilization (CU) — in the manufacturing sector recovered further to 72.4% in Q3 2021-22 from 68.3% in the previous quarter, surpassing the pre-pandemic level of 69.9% in Q4 2019-20

– Headline CPI inflation – edged up to 6% in Jan 2022 and 6.1% in Feb 2022
– Core CPI inflation — Core inflation i.e. CPI Inflation excluding food and fuel remained elevated though there was some moderation from 6.0% in January to 5.8% in February primarily due to easing of inflation in transport and communication; pan, tobacco and intoxicants; recreation and amusement; and health
– Food inflation — Pick-up in food inflation contributed the most in headline inflation, with inflation of cereals, vegetables, species and protein based food items like eggs, meat and fish being the key drivers
– Fuel inflation — Fuel inflation moderated on continuing deflation in electricity and steady LPG prices

– Domestic Demand — Private consumption and fixed investment — key drovers of domestic demand — however, remained subdued, with these two components being only 1.2& and 2.6% respectively, above their pre-pandemic levels
– Rural Demand — Mirrored in two-wheeler and tractor sales contracted in February
– Urban demand- Reflected in domestic air traffic rebounded in March and the pace of contraction in passenger vehicles moderated in February

Liquidity and financial market conditions
– Overall system liquidity — LAF remained in large surplus in Mar 2022 at Rs. 7.5 lakh crore, marginally lower than Rs. 7.8 lakh crore in Jan-Feb 2022
– Reserve money expanded by 10.9% on April 1, 2022
– Money supply (M3) and bank credit by commercial banks — rose (YoY) by 8.7% and 9.6% respectively as on March 25 2022
– Foreign exchange reserves — Increased by US$ 30 billion in 2021-22 to US$ 606.50 billion on April 1, 2022
– On-tap Liquidity Facilities — The RBI will engage in a gradual and calibrated withdrawal of this liquidity over a multi-year time frame in a non-disruptive manner beginning this year
– Interoperable card-less cash withdrawals at ATMs — will be available across all banks
– Individual Housing Loans — Rationalizing of Risk Weights — Extended till March 31, 2022
– Bharat Bill Payment System — Rationalization of Net-worth requirement for operating unites — Net-worth requirement reduced from Rs. 100 crore to Rs. 25 crore

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