Monetary Policy Report – April 2022

The monetary policy of a country is the key tool for judging the financial and economic position and future outlook. The monetary policy report is a comprehensive, detailed report published from time to time to regulate the credit and economic policies of the country. The monetary policy committee, which is an authorised body with a legal framework, publishes these reports. It comes under the Reserve Bank of India Act, 1934. 

Highlights of the Monetary Policy Report- April 2022

The last meeting of the Monetary Policy Committee for framing policies for the financial year 2023 was held on February 10, 2022. The policy rates were not changed. 

Here is a list of essential things that were listed in the MPC’s outlook: 

The growth of MPC’s outlook was subdued. 

The expected growth in the real GDP was moderated to 7.8% for FY 2023, which showed a surge of 9.2% in FY2022 because of the base effect as depicted by NSO.

Forecasts are exposed to downside risks.

The  Forecasts are exposed to downside risks from global financial volatility of the given market, rising prices of international commodities, and ongoing global disruptions of the supply side. Given the gloomy outlook for GDP over the next 2-3 quarters, the process of policy normalisation process as well as the rate hike cycle is likely to drag on indefinitely, unless inflation surprises us unusually. 

RBI Provided statistics

The Reserve Bank of India (RBI) provided consumer confidence statistics that showed vast improvements in the present situation index. The future expectancy index did reduce when the third wave began, but it remained in the optimistic range. This is consistent with the belief that the third wave’s reduced severity will minimise the shock for the confidence of the consumer, allowing for a speedier return to regular economic activity.

MPC’s inflation forecasts

Furthermore, the MPC’s inflation forecasts were reasonably mild. CPI inflation is expected to average 4.5 per cent in the financial year 2023, compared to 5.3 per cent in the financial year 2022; this is considerably below market estimates, which are very near to 5%. More crucially, by H2 FY2023, inflation is forecast to revert to the midpoint of the MPC’s inflation goal of 2%-6%, meaning that there is no immediate need to raise rates (beyond the normalised policies altering the reverse repo spikes) due to inflation worries.

Difficulties of supply-side

Supply-side difficulties are seen as driving inflation, as seen by the MPC’s comment that “cost-push exerts a lot of pressures on the core inflation that may persist in the near term”, adding RBI Governor’s remark that “core inflation continues to rise, while demand-pull forces are still modest.”

Assitance of RBI

On a brighter note, the RBI appears to have given the government of India some assistance by increasing the voluntary retention route (VRR) restrictions for foreign portfolio investors by a sum of Rs. 1.0 trillion, which would also help to maintain yields in control.

Turnaround due to policy

Given that a sizable portion of market participants anticipated reverse repo rises, the policy was highly dovish overall. As a result, a turnaround to the neutral stance in April, the Financial year 2022 policy meeting looks unlikely; however, policy normalisation movements are likely in subsequent sessions. In light of the predictions of higher inflation than the RBI’s projections, we’ve pencilled in two 25bps repo rate rises in August and October 2022. Nonetheless, it is expected that a longer pause will follow them to examine the growth’s stability and broad base.

Conclusion

The primary purpose of the monetary policy report is to ensure the stability and proper functioning of the country. It also provides that the inflation rates are adequately set for ensuring equality of demand and supply. The latest monetary policy report published in April 2022 covers market volatility, gross domestic product and the overall production levels in the country.