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Five Takeaways From RBI Monetary Policy

ICICI Securities 18 Feb 2022 DISCLAIMER

The Reserve Bank of India (RBI) in its monetary policy review meet on February 10, 2022, unanimously left policy rates unchanged and retained an accommodative stance. Here are five keys takeaways from the policy meet.

Status quo on Policy Rates to Support Economic Growth

In an environment where global central bankers are rushing to raise interest rates across much of the developed world and in a few emerging markets, the RBI’s action stands out. The status quo of monetary policy and the RBI governor’s dovish statement surprised markets positively.

RBI’s Monetary Policy Committee (MPC) on February 10 left the key rates unchanged and persisted with its accommodative stance. The MPC maintained the repo rate (the rate at which the RBI lends short-term funds to banks) at 4 per cent and reverse repo rate (the rate at which the banks park their funds with RBI) at 3.35 per cent. RBI has left the key rate unchanged mainly because of its view that the ongoing domestic recovery is still incomplete and needs continued policy support.

Inflation Under Control

The central bank noted that core inflation continues to remain at tolerance testing levels, but demand-pull pressure remains muted. Going further, RBI expects that in the financial year (FY) 2023, Consumer Price index (CPI) will moderate to 4.5 per cent on the back of fresh crops, supply side intervention by the government on edible oil, and a waning base effect.

It is noteworthy to mention that RBI’s target is to keep inflation in a band of 2-6 per cent. Considering the lower inflation band in the coming future, as per RBI’s estimate, it is almost certain that there won’t be any rate hike soon. This bodes well for the market sentiments.

Economic Growth Forecast at 7.8 Per cent

RBI in the policy meet noted that, going forward, the government’s thrust on capital expenditure and exports are expected to enhance productive capacity and strengthen aggregate demand. This would also crowd in private investment. The conducive financial conditions engendered by the RBI’s policy actions will provide impetus to investment activity.

According to the surveys done by the RBI, capacity utilisation is rising, and the outlook on business and consumer confidence remain in the optimistic territory, which should support investment as well as consumption demand. The central bank believes that there is some loss of momentum in near-term growth, while global factors are turning adverse. Looking ahead, domestic growth drivers are gradually improving.

Considering all these factors, real gross domestic product (GDP) growth is projected at 7.8 per cent for 2022-23. This bodes well for attracting foreign institutional investors as India is one of the fastest growing economies.

Positive for home buyers

The RBI repo rate has a direct bearing on the home loan interest rate. When it lowers the repo rate, the banks’ cost of borrowing comes down and banks can pass on this benefit to customers. The fact that the repo rates remain ‘unchanged’ is good for home loan borrowers as the floating retail loan rates, which are directly linked to the external benchmark repo rates, will continue at what are the lowest levels in the last two decades.

A continuation of this low interest rate regime supports the overall environment of affordability for some more time for both existing and new home buyers.

Boosts for markets sentiments

RBI’s decision not to increase the reverse repo rate was a positive surprise for corporates and overall markets. Its decision to continue to maintain an accommodative stance of the monetary policy clearly demonstrates its focus on prioritising domestic growth. This could be seen as a positive indicator for equity markets as growth would not be hindered by increasing cost of capital. Higher borrowing costs for corporates translates into squeezed margin. At the end, it translates into lower profitability.


Both the government and the central bank are working in tandem to boost the economic growth. This is the time to reap rewards by participating in India’s growth story.


Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

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