RBI Lowers Growth Forecast to 7.2% for FY23; Projects April Inflation at 5.7% From 4.5% in Feb

Mumbai: The Reserve Bank of India (RBI) on Friday kept borrowing costs unchanged at a record low for the 11th time in a row in a bid to continue supporting economic growth despite inflation edging higher in the aftermath of Russia's war in Ukraine. 

RBI's six-member Monetary Policy Committee voted to hold the benchmark repurchase or the repo rate at 4 per cent, Governor Shaktikanta Das said.

The panel decided to stick to an accommodative stance "while focussing on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth". 

As it now anticipates a much faster rise in inflation than earlier - the inflation forecast has been raised to 5.7% for the fiscal that started on April 1, up from its 4.5 per cent estimate in February. 

The RBI also lowered the economic growth forecast to 7.2% for the current 2022-23 fiscal from the previous outlook of 7.8%. This compares to real GDP growth of 8.9% in 2021-22.

Stating that the economic activity is barely above pre-pandemic levels but continues to steadily recover, Das said the central bank will engage in a gradual withdrawal of liquidity over a multi-year timeframe beginning this year. 

The RBI announced a new tool that will soak up excess cash in the banking system, restoring the width of the liquidity adjustment facility to 50 basis points - a step seen as moving away from the ultra-loose monetary policy embraced during the pandemic. 

Das said the global economy is seeing "tectonic shifts" from the war and extreme volatility in commodity and financial markets. 

"Caught in the cross-current of multiple headwinds, our approach needs to be cautious but proactive in mitigating the adverse impact on India's growth, inflation and financial conditions," he said. 

Inflation has held above the targeted 6% levels so far this year, casting doubts on the RBI's strategy of keeping interest rates low to bolster growth. 

The geopolitical scenario on the global front and other challenges have led the RBI to lower its growth forecast but the Indian economy appears to be well placed to withstand the shock supported by its forex reserves and stable financial sector. 

The governor said global crude oil prices remain volatile at elevated levels while food, as well as metal and other commodity prices, have also hardened significantly. 

Private consumption and fixed investment - key drivers of domestic demand - however, remain subdued. 

"Escalating geopolitical tensions have cast a shadow on our economic outlook," he said. "Sharp increase in domestic pump prices (of petrol and diesel) could trigger broad-based second-round price pressures." 

Among other measures announced included a discussion paper on climate risk and sustainable finance, a committee to examine and review the current state of customer service in the RBI regulated entities, extending card-less cash withdrawal through ATMs across all banks, and rationalisation of the net worth requirement for operating units on the interoperable platform for bill payments Bharat Bill Payment System.

"As the daunting headwinds of the geopolitical situation challenge us, the RBI is braced up and prepared to defend the Indian economy with all instruments at its command," he said. "As we have demonstrated over the last two years, we are not hostage to any rulebook and no action is off the table when the need of the hour is to safeguard the economy." 

The goals of price stability, sustained growth and financial stability are guiding factors. 

During the pandemic, the RBI offered liquidity facilities of Rs 17.2 lakh crore, of which Rs 11.9 lakh crore was utilised. So far Rs 5.0 lakh crore has been returned or withdrawn on the lapse of various facilities on their due dates. 

RBI extends rationalised home loan norms till March 2023 

Seeking to facilitate a higher credit flow of individual housing loans, the RBI on Friday extended the rationalised home loan norms by another year till March 31, 2023.

In October 2020, the Reserve Bank as a countercyclical measure to deal with the COVID situation had rationalised the risk weights by linking them only with Loan to Value (LTV) ratios for all new housing loans sanctioned up to March 31, 2022.

Unveiling the first bi-monthly monetary policy of the current fiscal, RBI Governor Shaktikanta Das said the risk weights for individual housing loans were rationalised by linking them only with LTV ratios for all new housing loans sanctioned up to March 31, 2022. 

Recognising the importance of the housing sector and its multiplier effects, it has been decided to extend the applicability of these guidelines till March 31, 2023, he said.

"This will facilitate higher credit flow for individual housing loans," Das said. 

Such loans will continue to attract a risk weight of 35% where LTV is less than or equal to 80%, and a risk weight of 50% where LTV is more than 80% but less than or equal to 90%. 

The requirement of standard asset provision of 0.25% will also continue to apply to all such loans. 

Commenting on the RBI's decision, Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and PropTiger.com, said that despite inflationary pressures increasing, the RBI MPC has continued with its supportive approach to the economy and maintained a status quo on key lending rates. 

"By extending the applicability of LTV ratio till March 31, 2023, which will facilitate higher credit flow for individual housing loans, the RBI has recognised the importance of the housing sector and its multiplier effects on the economy," he said. 

Agarwala further said sales numbers indicate that India’s real estate sector is steadily marching towards more sustained recovery and support policies like these will help that further. 

V Swaminathan, the CEO of Andromeda and Apnapaisa, said the extension of the rationalised risk weightage norms for individual home loans will boost participation in this sector. 

Housing sales have increased sharply during the last year after a major setback in 2020 when demand plunged by almost 50 per cent due to the COVID pandemic.

Historical low-interest rate is also one of the major reasons driving the sale of residential properties.