The Reserve Bank of India’s monetary policy outcome was less about rates and more about the policy language, rate stance, forward guidance and liquidity infusion through the Government Securities Acquisition Programme (GSAP). The stance remained unchanged while the forward guidance continued to be unequivocally dovish.
To nurture its revised state-based forward guidance, the Monetary Policy Committee (MPC) added the word ‘revive’ to acknowledge the scar of the second wave of the Covid-19 pandemic while continuing with its accommodative stance of sustaining growth on a durable basis. Also, the MPC did not go the full length in acknowledging higher inflationary risks, but modestly increased its average inflation forecast for FY22 to 5.1% (from 5%).
The growth forecast for FY22 was scaled down by a percentage point to 9.5% and inflation expectations were raised amid supply side disruptions, signalling that the road to recovery could be bumpy. The decisions were in line with expectations.
The weakness in growth amidst Covid-led lockdowns prompted MPC to acknowledge that the current situation warranted “policy support from all sides – fiscal, monetary and sectoral”.
Indian exports fell by 7.2 per cent in value terms in FY21, as the world wrestled with the COVID pandemic which had a severe impact to consumption because of the lockdowns and consequently to global trade. The exports had surged by more than 60 per cent in March to USD 34.45 billion as against USD 21.49 billion in the year-ago period.