Brace to pay higher prices this year for oil, chicken, milk, fuel: Key takeaways from RBI policy meet

NEW DELHI: The Reserve Bank of India on Friday left key rates unchanged at 4 percent and maintained an accommodative stance as the ongoing Russia-Ukraine conflict has pushed up the cost of commodities internationally, resulting in a higher inflationary trend globally.
” Since the last meeting in Feb 2022, expected positive benefits from the ebbing of Omicron wave has been offset by geopolitical tensions, which has changed the international and domestic landscape.. Concerns over protracted supply disruptions have rattled global commodity and financial markets, given the significant share of the two economies engaged in war in global production and exports of key commodities like oil and natural gas; wheat and corn; palladium, aluminum and nickel; edible oils; and fertilisers. Global crude oil prices briefly crossed US$ 130 per barrel, touching their highest level since 2008 and remain volatile at elevated levels, despite some correction. ” said RBI governor Shantikanta Das.
The central bank has decided to maintain the repo-rate, which is the key rate at which the RBI lends money to commercial banks, at a 19-year low of 4 percent.
Inflation is now projected to be higher at 5.7% for the year 2022-2023 against a projection of 4.5 percent earlier, while growth for the year will be lower than February’s expectations at 7.2 percent. However, RBI will continue to ensure adequate liquidity. But the central bank said it would restore the width of the liquidity adjustment facility to 50 basis points, which was seen as a first step to move away from the ultra loose monetary policy embraced during the COVID-19 pandemic.
Das said RBI’s extraordinary liquidity measures have left Rs 8.5 trillion overhang in the system and that it will now engage in a gradual, calibrated, non-disruptive withdrawal of this excess liquidity over a multi-year period.
Das said economic activity is barely above pre-pandemic levels but continues to steadily recover.
The key takeaways from his speech include:
Due to geopolitical tensions between Ukraine and Russia, the price of several commodities such as oil and natural gas, wheat and corn, edible oil, fertiliser, will remain elevated through the year. Given the significant share of the two economies in the global production of key commodities, there will be protracted supply disruptions through the year, which means global food prices will harden significantly.
Risk aversion towards assets of emerging market economies (EMEs) has increased, leading to large capital outflows and a depreciating bias in their currencies.
Since Ukraine is a key supplier of edible oil, prices will remain elevated due to loss of supply from the Black Sea region.
Even the price of livestock feed has gone up, which means your chicken, poultry and milk prices will remain elevated through the year
Higher international prices of key commodities implies aggravated prices across manufacturing, agriculture and services.
Sharp increase in domestic pump prices could trigger broad-based second round price pressures.
Financial markets are likely to remain volatile on rising risk premia, dislocations in trade and capital flows and divergent monetary policy responses across central banks.
RBI has increased its annual inflation forecast to 5.7% from 4.5% earlier, taking into account a normal monsoon and the average crude oil price (Indian basket) of US $ 100 per barrel.
The RBI also reduced interest rate corridor to 50 basis points. It lowered growth projection to 7.2% from 7.8% earlier.
On record borrowing plans this fiscal year, RBI said it will use various instruments to complete government borrowings.
RBI governor also assured that the central bank is bracing to defend the Indian economy at all costs.
Good news:
Cardless cash withdrawal will be made available at all bank branches and ATMs via UPI, to prevent frauds.
To secure payment systems, Das has proposed guidelines for such operators
Bharat Bill Pay System, an interoperable platform for bill payments, has seen an increase in the volume of bill payments and billers over the years. To
further facilitate greater penetration of bill payments through the BBPS, RBI has reduced the net worth requirement of such entities from Rs 100 crore to Rs 25 crore.
Money market opening time have been restored to 9:00 am, which is the pre-pandemic time.
India’s foreign exchange reserves stand at US$ 606.5 billion as on April 1, 2022. The Reserve Bank remains committed to maintain orderly conditions in the domestic financial markets and will take appropriate steps, as needed, on an ongoing basis to contain the adverse spillovers from the global developments.
Gradual, calibrated withdrawal of liquidity over multi-year time frame, in a non-disruptive manner beginning this year.
The RBI will deploy various instruments as warranted to help the government complete its FY23 market borrowing programme.
RBI expects CAD to stay at sustainable levels which can be financed with normal capital flows.

Indianshri

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