As was widely expected, RBI did the logical thing – maintained a status quo, kept the interest rates unchanged.

The MPC voted 5-1 to retain the accommodative stance as long as necessary to revive and sustain growth on a durable basis, while ensuring that inflation remains within the target.

The Governor gave justification for maintaining this stance – sticky core inflation, demand slack, Indian economy gaining traction, contact intensive industry continuing to lag. The Governor did say that a calibrated reversal of fuel taxes could contribute to lowering of inflation – hope the Govt pays attention to these words.

While rates were expected to remain untouched, RBI was expected to tinker with the inflation and GDP targets. And that he did.

GDP

The RBI retained the current GDP target – FY22 estimated at 9.5%

In Q2FY22, - increased to 7.9% v/s 7. 3% earlier

In Q3 – increased to 6.8% v/s 6.3%

6.1% in Q4 and FY23 Q1 GDP at 17.2%.

And with inflation stabilizing, RBI changed the targets accordingly :

FY22 lowered to 5.3% vs 5.7% earlier

Q2 FY22 at 5.1% vs 5.9%

Q3 FY22 at 4.5% vs 5.3%

Q4 FY22 retained at 5.8%

Q1 FY23 seen at 5.2% vs 5.1%

And liquidity – the tap was expected to start closing as there was just too much floating around. While the Governor assured that this in no way conveys that the RBI is withdrawing its accommodative stance, it cannot be ignored that there is too much liquidity sloshing around - liquidity in the system is around 7% of net demand and time liabilities and in terms of numbers, it amounts to more than Rs 13 lakh crore.

Taking this into account, without being disruptive and going slow, RBI decided to stop bond purchases under G-SAP. It also stepped up the pace of variable rate reverse repo auctions, looking also at the option of conducting 28-day Variable Reverse Repo (VRR) auctions along with the 14-day currently.

Giving growth a chance – that’s what the Governor has done in this policy and that’s the best, sensible thing to do.

The best takeaway – his quote on liquidity, saying, "We don't want to rock the boat when the shore is near as there is a journey beyond the shores."