HCDEN Insights
Not Investment Advice

Home / Insights / RBI monetary Policy Highlights

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

Inflation
– 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

Demand
– 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

HCDEN Insights reflect the opinions of only the authors who are associated persons of the company and do not reflect the views of Hal Clyde Denison Limited or any of its subsidiaries or affiliates. They are for informational purposes only, and are not a recommendation of an investment strategy or to buy or sell any security, digital asset (cryptocurrency, etc) in any account. They are also not research reports and are not intended to serve as the basis for any investment decision.

All investments involve risk including the loss of principal and past performance does not guarantee future results.