The RBI kept interest rates on hold but promised to retain the policy stance as accommodative to support growth as long as it was required to aid recovery. RBI governor Shaktikanta Das also announced that the cash reserve ratio (CRR) - share of deposits that banks must hold with the central bank - would be restored to pre-Covid level by May 22, a move which will drain £14 billion from the banking system.
“Consumer confidence is reviving, and business expectations of manufacturing, services and infrastructure remain upbeat. The movement of goods and people and domestic trading activity is growing at a robust pace. Electricity and energy demand reflect a broader normalisation of economic activity than in December, even as fears of second wave abate,” said Das.
He said the Budget 2021-22 has provided a strong impetus for revival of sectors such as health and well-being, infrastructure, innovation and research, among others. This will have a cascading multiplier effect, particularly in improving the investment climate and reinvigorating domestic demand, income and employment.
“The investment-oriented stimulus under Aatma-Nirbhar 2.0 and 3.0 (given during the peak of the pandemic) has started working its way through and is improving the spending momentum along with the quality of public investment. Both will facilitate regaining India’s growth potential over the medium term. The projected increase in capital expenditure augurs well for capacity creation and crowding in private investment, thereby improving the prospects for growth and building credibility around the quality of expenditure,” said Das.
Bankers saw the CRR restoration as a sign that the RBI was seeing the recovery as durable and part of the return to normalcy. In its policy statement the central bank forecast growth of 10.5% for FY22, marginally lower than the government’s 11% expectation, but a sharp bounce back from the 7.7% contraction in FY21.
Inflation was forecast to be in 5-5.2% range during the first half of the next fiscal year and 5.2% in the fourth quarter, well within the 6% tolerance level “The need of the hour is to continue to support growth, assuage the impact of Covid-19 and return the economy to a higher growth trajectory,” said Das.
