RBI retains real GDP growth at 9.5% in 2021-22

The Reserve Bank of India (RBI) retained the real GDP growth at 9.5% in 2021-22 as domestic economic activity continues to recover. This entails 21.4% in Q1, 7.3% in Q2, 6.3% in Q3, and 6.1% in Q4. The statement follows the three-day review meeting of the six-member Monetary Policy Committee (MPC), headed by RBI governor Shaktikanta Das, which oversees the deciding of key policy rates.

The real GDP growth for Q1:2022-23 is estimated at 17.2%, and the agricultural production and rural demand are expected to remain buoyant. The anticipated uptake in government expenditure, including capital expenditure, and the recent economic package announced by the government will provide further impetus to aggregate demand. The MPC voted 5-1 to maintain an accommodative stance as long as required to maintain stable growth while ensuring that inflation remains under control.

Firms polled in RBI surveys expect expansion in production volumes in Q2:2021-22 and it will likely continue through Q4. However, high levels of global commodity prices and financial market volatility are the primary downside risks.

The Reserve Bank also kept the repo rate unchanged at 4%, while the reverse repo rate also stayed at 3.35%. The apex bank had last slashed the repo rate by 40 basis points in May 2020 to 4% to improve demand in the COVID-hit economy, and since then it has refrained from taking any action on key interest rates. RBI is also watching the prices of crude oil closely and surplus liquidity of Rs 9.5 lakh crore has been registered so far in October.

In addition, the RBI set a GDP growth target of 17.1% in Q1 of FY23. Also, as pulse prices are expected to decrease, the retail inflation rate in FY22 has been set at 5.3%, the retail inflation for Q2 FY22 is estimated at 5.1%, and the retail inflation rate in Q3 FY22 has been estimated at 4.5%.