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RBI Monetary Policy takeaways: Key policy rates unchanged, FY22 inflation forecast retained at 5.3%

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RBI monetary policy: RBI’s Monetary Policy Review Committee has once again decided to keep key lending rates and inflation and real GDP projections unchanged for FY22, the central bank governor Shaktikanta Das announced. Here are all highlights of RBI's bi-monthly monetary policy

RBI Monetary Policy takeaways: Key policy rates unchanged, FY22 inflation forecast retained at 5.3%
The Reserve Bank of India’s (RBI’s) Monetary Policy Review Committee has decided to keep the key lending rates unchanged for the ninth time in a row, the central bank governor Shaktikanta Das announced on Wednesday. RBI also retained the GDP growth forecast at 9.5 percent for the current fiscal but cautioned that the economic recovery is not yet strong enough to be self-sustaining. The committee maintained the projection of retail inflation at 5.3 percent for FY22. RBI further said RBI will launch a UPI-based payment product for feature phone users and make the process flow for small value transactions simpler.
Here are key highlights of RBI's bi-monthly monetary policy
-MPC votes unanimously to keep repo rate unchanged at 4 percent
-RBI leaves reverse repo rate unchanged at 3.35 percent
-MPC votes 5:1 to continue with accommodative stance as long as necessary to revive & sustain growth on a durable basis
Growth outlook
-Real GDP growth forecast for FY22 left unchanged at 9.5 percent
-Real GDP growth for Q3 FY22 seen at 6.6 percent vs 6.8 percent earlier
-GDP growth for Q4 FY22 seen at 6 percent vs 6.1 percent earlier
-Q1FY23 GDP growth forecast retained at 17.2 percent
-Q2 FY23 GDP growth seen at 7.8 percent
-Incoming information indicates that consumption demand has been improving
-Rural demand is exhibiting resilience and farm employment is picking up
-Reductions in excise duty, state VAT on petrol and diesel should support consumption demand
-Recovery that had been interrupted by the second COVID-19 wave is regaining traction
-Growth recovery is not yet strong enough to be self-sustaining and durable
-This underscores the vital importance of continued policy support
-Downside risks to the outlook have risen with the emergence of Omicron variant of coronavirus
-Headwinds continue to be posed by elevated international energy and commodity prices, potential volatility in global financial markets, prolonged global supply bottlenecks
Inflation Outlook
-Q3 FY22 CPI forecast revised to 5.1 percent vs 4.5 percent earlier
-Q4 FY22 CPI forecast revised to 5.7 percent vs 5.8 percent earlier
-Q1 FY23 CPI forecast revised to 5 percent vs 5.2 percent earlier
-Q2 FY23 CPI forecast at 5 percent
-Inflation trajectory likely to be in line with earlier projections, price pressures may persist in the immediate term
-Expect headline inflation to peak in Q4:2021-22 and soften thereafter
Liquidity
-RBI has been rebalancing liquidity surplus by shifting it out of fixed-rate overnight reverse repo window into Variable Reverse Repo Rate (VRRR) auctions
-Objective is to reestablish 14-day VRRR auction as the main liquidity management operation
-By and large, the rebalancing of liquidity has proceeded in a timely and non-disruptive manner as planned
-RBI proposed to enhance 14-day VRRR auction amounts on a fortnightly basis
-To increase 14-day VRRR auction to Rs 6.5 lakh crore on December 17; and further to Rs 7.5 lakh crore on December 31
-From January 2022 onwards, liquidity absorption will be undertaken mainly through the auction route
-Going forward, the main operation of 14-day VRRRs will continue to be complemented by longer-term VRRRs
Non-policy measures
-Propose to issue a discussion paper to cover all aspects related to charges involved in various channels of digital payments
-Paper will also seek feedback on measures required to make digital transactions affordable to users and economically remunerative to the providers
-Discussion Paper on Charges in Payment Systems to be released in a month’s time
-Banks meeting capital requirements do not need prior RBI nod for infusion of capital in overseas branches, subsidiaries/ retention/repatriation/transfer of profits
-Discussion Paper on Review of Prudential Norms for Investment Portfolio of Banks to be released shortly
-Propose to launch a UPI-based payment product for feature phone users
-Increase in UPI transaction limit for specified categories
-Simplification of process flow for small value transactions over UPI
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