Reserve Bank of India (RBI) Governor Shaktikanta Das said on Wednesday that recent trade deals and geopolitical conditions open up potential market opportunities for India. Observing that India’s external sector has remained resilient despite formidable global headwinds, he said provisional data suggests that merchandise exports remained strong in April 2022 and services exports hit a new high in April. March 2022.
“Potential market opportunities have opened up due to geopolitical conditions and recent trade deals. Strong revenue forecasts from major information technology (IT) companies also bode well for the overall outlook for the external sector in 2022-23,” he said in an off-cycle. political announcement. Deteriorating terms of trade, driven by high commodity prices, could have implications for the current account deficit in 2022-23, he said, but should be comfortably financed.
“Net foreign direct investment flows have remained robust, despite some recent moderation. Long-term flows such as external commercial borrowings also remain stable. providing strong support. The external debt to GDP ratio remains low at 20%,” he said.
Regarding liquidity, Das assured that the RBI will ensure adequate liquidity in the system to meet the productive needs of the economy in support of credit drawdown and growth.
Citing April policy, he said several liquidity management measures had been taken in line with the change in monetary policy stance, including restoring a symmetric LAF corridor around the repo rate and l introduction of the permanent deposit facility (SDF).
These measures operationalize the primacy accorded to the maintenance of price stability, while keeping in mind the objective of growth. Monetary policy must engender an environment in which inflation persistence is broken and inflation expectations are re-anchored, he said.
The leeway for this reordering of priorities becomes available with the receding of the pandemic and the broad steady base of growth as economic activity recovers and exceeds pre-pandemic levels, he added. Observing that liquidity conditions should be modulated in line with policy action and direction to ensure their full and effective transmission to the rest of the economy, he said liquidity in the banking system has remained comfortable since the announcement. politics in April.
Average excess liquidity in the banking system, reflected in total absorption through SDF auctions and floating rate reverse repo (VRRR), stood at Rs 7.5 lakh crore from 8-29 April 2022 The large excess liquidity in the form of daily excess funds parked under the SDF (average of Rs 2.0 lakh crore from 8 to 29 April 2022) has driven the weighted average overnight cash rate (WACR ), the operational objective of monetary policy dipping below the SDF rate.
The favorable response from banks, as evidenced by the bid coverage ratios of the 14-day and 28-day VRRR auctions as well as the USD/INR sell-buy swap auction conducted on 26 April, also suggests that system-level liquidity remains abundant. “Therefore, in line with the direction of the withdrawal of accommodation and in line with the earlier announcement of the gradual withdrawal of cash over a multi-year period, it has been decided to increase the cash reserve ratio (CRR) by 50 basis points for 4.5% of net demand-and-time (NDTL) liabilities, effective the fortnight beginning May 21, 2022,” he said.
The withdrawal of liquidity via this increase in CRR would be in the range of Rs 87,000 crore. High and sustained inflation inevitably hurts savings, investment, competitiveness and output growth, he said, adding that it has pronounced negative effects on the poorest segments. of the population by eroding their purchasing power.
“I would therefore like to emphasize that our monetary policy actions today aimed at reducing inflation and anchoring inflation expectations will strengthen and solidify the economy’s medium-term growth prospects,” he said. .
“We remain mindful of the possible short-term impact of higher interest rates on output. Our actions will therefore be calibrated. I would further stress that monetary policy remains accommodative and our approach will be to focus on a cautious and calibrated approach to withdrawing extraordinary pandemic-related accommodations, keeping in mind the inflation-growth dynamic,” he added.
(Edited by : Shoma Bhattacharjee)
First post: STI