Why RBI kept repo rate unchanged, governor Shaktikanta Das explains

Reserve Bank of
India, the country’s central bank, on Friday decided to keep the policy repo
rate unchanged at 4%. The reverse repo rate is 3.35%. The
decision was taken in course of meetings conducted over the last three days. RBI
Governor Shaktikanta Das said that the monetary policy committee (MPC) decided
to remain accommodative “while focussing on withdrawal of accommodation to ensure
that inflation remains within target going forward.”

According to RBI
Governor Das, the benefits to the economy expected from the ebbing of the
Omicron wave were offset by the sharp escalation in geopolitical tensions
between Russia and Ukraine. “Economy is confronted by new and humongous
challenges. The situation in Europe can derail the global economy.”

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

Das said concerns
over global supply disruptions have rattled global commodity and financial
markets. This, he said, was because of the significant share of the two
economies engaged in the war in global production and exports of key
commodities like oil and natural gas, wheat, corn, nickel, edible oil and fertilizers.

Admitting to the challenges confronting the Indian economy, the RBI governor said that India is not a hostage to any rulebook. “No action is off the table when the need is to safeguard the Indian economy. Sky may be overcast, but we will use all our energies to let sunlight shine on India’s future. It is the faith, that steers us through stormy seas, moves mountains and jumps across the oceans.”

The RBI governor said that the macroeconomic outlook is undergoing tectonic shifts and the central bank needs to take preemptive stems. “RBI will continue to take nuanced and nimble approach,” Das said. 

The Indian central bank increased its annual inflation forecast to 5.7% from 4.5% earlier. The interest rate corridor was reduced to 50 basis points. India’s GDP growth projection was lowered from 7.8% to 7.2%. RBI said India is facing fresh challenges due to the war in Ukraine and the COVID lockdowns in China which threaten to exacerbate a global supply squeeze.