RBI keeps repo rate unchanged, cuts GDP growth forecast

The Reserve Bank of India (RBI) has kept borrowing costs unchanged at a record low for the 11th time in a row in a bid to continue supporting economic growth despite inflation edging higher in the aftermath of Russia's war in Ukraine.  Governor Shaktikanta Das on Friday announced  its first monetary policy statement of FY 2023. The Monetary Policy Committee of the Reserve Bank of India has also voted unanimously to maintain accommodative stance. The  MPC has also revised FY23 GDP forecast to 7.2% from earlier guidance of 7.8%. Inflation projection for FY 23 has also been revised up to 5.7%, higher than previous expectation of 4.5%. 

Stating that the economic activity is barely above pre-pandemic levels but continues to steadily recover, Das said the central bank will engage in a gradual withdrawal of liquidity over a multi-year timeframe beginning this year. The RBI announced a new tool that will soak up excess cash in the banking system, restoring the width of the liquidity adjustment facility to 50 basis points - a step seen as moving away from the ultra-loose monetary policy embraced during the pandemic.Das said the global economy is seeing "tectonic shifts" from the war and extreme volatility in commodity and financial markets. The repo rate was last cut on 22 May 2020 on the back covid-induced nationwide lockdown. Since then, the rate remains at a historic low of 4 per cent. The Governor said global crude oil prices remain volatile at elevated levels while food, as well as metal and other commodity prices, have also hardened significantly."Escalating geopolitical tensions have cast a shadow on our economic outlook," he said. "Sharp increase in domestic pump prices (of petrol and diesel) could trigger broad-based second-round price pressures."