Goodbye, Ultra-Accommodative RBI Policy: Key Highlights

RBI Governor Shaktikanta Das on Friday hinted at ending the accommodative policy stance that began three years ago, citing the rising uncertainties arising from the Ukraine war and the resultant increase in prices.

Addressing the media for the first time since the February 2020 monetary policy review offline here at the Mint Road headquarters, Mr Das said the time is appropriate to put inflation ahead of growth in monetary policy priorities. It is a shift after three years, and the same is reflected in the upward revision in the inflation forecast for the current year.

Mr Das said, “in the sequence of priority, we have put inflation before growth, as for the last three years.”

Crude oil prices have been fluctuating daily. Therefore, the situation is very volatile; therefore, the central bank will watch the ongoing situation. He said that all actions would depend on how things pan out in the coming months.

Before the presser, the RBI-MPC (Monetary Policy Committee voted to retain key policy rates unchanged and retained the accommodative policy stance, even as it increased the inflation forecast to 5.7 per cent for the year, steeply higher than the 4.5 per cent projected in the February policy review.

The central bank cut its economic growth projection to 7.2 per cent for the current fiscal from 7.8 per cent, estimated earlier, amid volatile crude oil prices and supply chain disruptions due to the ongoing Russia-Ukraine war.

Commenting on the geopolitical situation, the central bank chief said it is dynamic and fast-changing, and all actions will be tailored accordingly.

The governor blamed the upward review of prices outlook primarily on the ongoing Ukraine war and its impact on crude oil, edible oils and other vital commodities. 

“Between February and now, tectonic shifts have happened globally,” Mr Das said while referring to the Russia-Ukraine war, which began on February 24, just days after the previous meeting of the RBI’s Monetary Policy Committee.

He said that inflation projections significantly had been revised upwards mainly due to crude oil rising above the $100 per barrel mark. However, the RBI asserted that it would use all available tools to defend the Indian economy. 

Still, Mr Das said the central bank would not do anything that goes against the spirit of the global sanction on Moscow when asked about the increasing rupee-rouble trade, given the tough sanctions on Russia, following its invasion of Ukraine.

RBI will continue to adopt a nuanced, nimble approach to liquidity management while ensuring adequate liquidity in the system, said Mr Das, referring to the pandemic situation and efforts taken by the central bank.

He said, “now, two years later, as we were emerging out of the pandemic, the global economy has seen tectonic shifts beginning February 24, with the commencement of the war in Europe, followed by sanctions and escalating geopolitical tensions.” 

“Once again, we in the RBI stand resolute and in readiness to defend the economy and navigate out of the current storm,” he added.

On cardless withdrawals, the governor said it had been introduced to cut down on skimming. Credit and debit cards’ issuance will continue as they have many uses apart from money withdrawal from ATMs.

Seeking to facilitate a higher credit flow of individual housing loans, the RBI on Friday extended the rationalised home loan norms by another year until March 31, 2023. “This will facilitate higher credit flow for individual housing loans,” Mr Das said.