RBI projects India’s FY23 retail inflation at 4.5%

RBI keeps key rates unchanged

Mumbai:- India’s FY23 retail inflation is projected at 4.5 per cent, said Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday.

Besides, inflation projection for 2021-22 is retained at 5.3 per cent, with Q4FY22 at 5.7 per cent on account of unfavourable base effects that are expected to ease subsequently.

In his policy statement post the Monetary Policy Committee’s bi-monthly meeting, he said: “The CPI reading for January 2022 is expected to move closer to the upper tolerance band, largely due to adverse base effects.

“Taking all these factors into consideration and on the assumption of a normal monsoon, CPI inflation for 2022-23 is projected at 4.5 per cent with Q1:2022-23 at 4.9 per cent; Q2 at 5.0 per cent; Q3 at 4.0 per cent; and Q4 at 4.2 per cent, with risks broadly balanced.”

On Thursday, the RBI retained its key short-term lending rates during the sixth and final monetary policy review of FY22.

Further, the growth-oriented accommodative stance was retained to give a push to economic activity.

In addition, the RBI’s Monetary Policy Committee (MPC) maintained the repo rate, or short-term lending rate, for commercial banks, at 4 per cent.

H I G H L I G H T S 

Key Rates remain unchanged 

• The MPC has voted unanimously to keep policy repo rate unchanged at 4 percent. 

• Reverse repo rate also remains unchanged at 3.35 percent

• MPC decided to continue ‘accommodative stance as long as necessary’ by a majority of 5-1. 

• MPC holds a view continued policy support is required for aiding a broad-based recovery.

GDP Growth 

• India is charting a different course of recovery from the rest of the world.  It is poised to grow fastest among the major economies, as per the projections made by the IMF

• Real GDP growth at 9.2% for 2021-22 keeps GDP at modestly above level of GDP for 2019-20.

• Real GDP growth for 2022-23 is projected at 7.8%. 

• Government’s thrust on capital expenditure and exports expected to enhance productive capacity and strengthen aggregate demand.


• Core inflation remains elevated and headline inflation is expected to peak in Q4

• Inflation projection for 2021-22 is retained at 5.3% 

• CPI inflation for 2022-23 is projected at 4.5% for Q1 – 4.9%; for Q2 – 5.0%; for Q3 – 4.0%;  for Q4 – 4.2%

• Softening of food prices is a welcome relief.  Strong supply side interventions by Government and increase in domestic production is expected to further ease prices of pulses and edible oil. 

Financial Stability

• Despite pandemic induced bout of extreme volatility, Indian financial system has remained resilient and is now in a better position to meet credit demands as economic recovery picks up. 

Liquidity management

• Policy actions of RBI having yielded desired result, it is now turning to rebalance liquidity.

• Variable Rate Repo operations of varying tenures will henceforth be conducted as and when warranted. Second, variable rate repos and variable rate reverse repos of 14-day tenures will operate as the main liquidity management tool. 

• Variable Rate Repos and Variable Rate Reverse Repos of 14-day tenure will operate as the main liquidity management tool, based on liquidity conditions; these will coincide with CRR maintenance cycle. 

• From March 1, 2022, fixed rate reverse repo and MSF operations will be available only during 5.30 PM – 11.59 PM on all days, instead of from 9.00 AM – 11.59 PM


• Indian rupee has shown resilience in forex market in face of global spillovers; high forex reserve buffers and modest Current Account Deficit provide sustainability to our external sector.

Additional measures announced 

• Limit for investment under Voluntary Retention Route Scheme enhanced from Rs. 1.5 lakh crore to Rs. 2.5 lakh crore, w.e.f April 1, 2022.   This will provide additional sources of capital to domestic debt market, including for government securities.

• Banks will now be allowed to undertake transactions in Offshore Foreign Currency Settled (FCS) Overnight Index Swaps (OIS) with non-residents and other market makers.  This will reduce segmentation between onshore and offshore markets, enable more efficient price discovery and further deepen interest rate derivatives market in India.

• On Tap Liquidity Facility for Emergency Health Services (Rs. 50,000 crore) and Contact Intensive Sectors (Rs. 15,000 crore) announced in May and June 2021 extended from March 31 till June 30, 2022, due to continued uncertainty following the third wave of Covid pandemic. 

• Cap under e-RUPI Prepaid Single Use Digital Payment Voucher issued by Centre and States increased from Rs 10,000 to Rs 1 lakh per voucher.   Such vouchers can now be used more than once till amount is completely redeemed. This will facilitate more efficient delivery of government schemes to beneficiaries

• Mandate Limit of Transactions in Trade Receivables Discounting System (TReDS) settled through National Automated Clearing House NACH to be increased from ₹1 crore at present to ₹3 crore. This will further enhance the ease of financing the growing liquidity requirements of MSMEs.

• Two Draft directions – Reserve Bank of India (IT Outsourcing) Directions, 2022 and Reserve Bank of India (Information Technology Governance, Risk, Controls and Assurance Practices) Directions, 2022 will be issued for public comments. This is to review and address issues relating to financial, operational and reputational risks faced by Regulated Entities, in wake of IT outsourcing and increasing use of digital channels by customers.

• The guidelines for Credit Default Swaps (CDS) initially issued in 2013 were reviewed and draft guidelines were issued in February 2021 for public comments. Taking into account the feedback received, the final CDS Directions are being issued today. These guidelines will facilitate the development of a credit derivatives market and deepen the corporate bond market in India.