Over to you finance minister says rbi
Reserve Bank of India’s monetary policy committee had one clear message for the government. Hereon, the principal tool to revive economic growth will have to be fiscal policy. Monetary policy has begun to transition to prioritising inflation over boosting economic growth.RBI’s policy rate (repo) was left unchanged at 4%. However, other tools were deployed to nudge interest rates in the economy upwards. A new tool, standing deposit facility (SDF), has been introduced to absorb liquidity from banks. The SDF rate is 3.75%, which is higher than the reverse repo rate of 3.35%. Henceforth, RBI’s liquidity operations will try to ensure the overnight money market rate is not lower than 3.75%. It’s an indirect way of pushing up interest rates without changing the repo rate.
This measure has been supplemented by reframing its liquidity policy as one that will “remain accommodative while focussing on withdrawal of accommodation to ensure that inflation remains within the target”.
The message is clear. Inflation will gain primacy in monetary policy.
These changes have come in the backdrop of RBI marking down GDP forecasts for 2022-23, while increasing its estimated retail inflation.
GDP for 2022-23 is expected to be 7.2% and retail inflation 5.7%.
It’s up to GoI to use its fiscal levers to deal with the fallout of the Russia-Ukraine conflict on economic momentum.
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