RBI Monetary Policy Committee slashes India’s real GDP growth forecast to 7.2%

The Reserve Bank of India‘s Monetary Policy Committee (MPC) on Friday revised India’s real Gross Domestic Product (GDP) growth rate to 7.2 % from February’s 7.8 % for FY23. In a press briefing on the MPC decision, RBI Governor Shaktikanta Das said that escalating geopolitical tensions have cast expectations to be lower on GDP growth.

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The MPC also revised the Q1FY23 GDP to 16.2 % from the previous estimate of 17.2 % in the February MPC meeting. Likewise, the Q2FY23 GDP has been revised to 6.2% from the previous 7 %, while the Q3FY23 GDP has been pegged at 4.1 % from February’s estimate of 4.3 %. The Q4FY23 GDP rate is now pegged at 4.1 % from an earlier February projection of 4.5%.

The Monetary Policy Committee (MPC) also kept the repo rate unchanged at 4% for the eleventh consecutive time while maintaining an ‘accommodative stance’.

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“Economic activity, although recovering, is barely above its pre-pandemic level. Against this backdrop, the MPC decided to retain the repo rate at 4% and remain accommodative,” Das said. 

“It (MPC) also decided to remain accommodative while focusing on withdrawal of accommodation to ensure inflation remains within the target while supporting growth,” he added.

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“Global food prices have hardened significantly. Risk aversion towards assets of EM economies has led to large capital outflows and depreciating bias in their currencies,”  Das said.

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CPI inflation is seen averaging 5.7 % in FY23. It is seen averaging 6.3% in April-June 2022;  5.0 % in July-September 2022;  5.4 % in October-December 2022, and  5.1 % in January-March 2023.

The macroeconomic outlook is undergoing tectonic shifts and the RBI will continue to take a nuanced and nimble approach, Governor Das said.

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“Normalisation of the Liquidity Adjustment Facility (LAF) corridor done today should not come as a surprise to market participants. Financial markets were prepared for the LAF corridor over the past several months. We are introducing the Standing Deposit Facility (SDF) to provide symmetry to the operating framework of monetary policy. RBI will introduce SDF as the floor for the LAF corridor. SDF has a 3.75 % interest rate. Access to SDF, MSF will be at the discretion of the banks,” he added.

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The RBI has cut its key lending rate,  the repo rate, by 115 bps since March 2020 to support the economy during the pandemic. The RBI last cut its policy rate on May 22, 2020, in an off-policy cycle when COVID-19 posed an unprecedented challenge to the economy.