The overall tone which came off was dovish, given the threat of Omicron and the factor of heightened uncertainty remaining a constant. Quoting Gandhiji and Mandela, the Governor sounded more anxious, saying, “Global monetary policy is reaching an inflection point, keeping financial markets edgy. India cannot be immune to global spill-overs and spread of new infections.”

Thanks to the Omicron, the six-member monetary policy committee (MPC), headed by Governor Shaktikanta Das, decided to maintain key interest rates. This is for the ninth consecutive time that rates remain status quo.

There was a 5:1 majority to retain RBI's accommodative stance – it will keep rates low or unchanged as long as required.

This means, Repo rate remains at 4% and reverse repo remains at 3.35% and Marginal Standing Facility (MSF) also stays where it is at 4.25%.

The RBI also maintained the GDP target for current fiscal FY22 at 9.5% and that for Q3FY22 was revised slightly downwards from 6.8% to 6.6%. It maintained that for Q1FY23 at 17.2%.

In terms of inflation, CPI has been way off the RBI target of 4% - it was at 4.35% in Sept, 4.48% in Oct; CPI data for Nov will come on Friday. RBI retained the target for FY22 at 5.3% as it expects vegetable prices to ease in coming months, which is a seasonal factor. Target is 5.1% for Q3, 5.7% for Q4, and 5% for Q1 FY23. These targets are much below what majority of the economists have predicted but its probably RBI being cautious, not wanting to press the panic button and in a way justifying its ‘accommodative’ stance when it says that its objective remains firm on price control.

Highlights of the speech:

Domestic economic outlook is somewhat clouded by Omicron variant

Price stability remains the cardinal principle of monetary policy

Recent tax cuts on petrol/diesel should support consumer purchasing power

Persistence of CPI inflation excluding food & fuel since June 2020 is an area of policy concern 

Continued policy supported is needed for durable recovery

Recovery of aggregate demand hinges on private investment which is still lagging

To release discussion paper on charges on digital payment

To provide banks with one more option to pre-pay outstanding funds availed through TLTRO 1.0 and 2.0 scheme.

To re-establish 14-day VRRR auction as main liquidity management operation

RBI permission no longer required for banks to infuse capital in their branches and arms overseas

Propose to launch UPI-based payment products for feature phone users

Issuing guidelines for use of alternative reference rate for ECBs, in transition away from LIBOR