Highlights from the RBI monetary policy meeting - August 2022

At its latest MPC meeting, RBI raised interest rates by 50 bps to 5.4% taking them above the pre-pandemic levels.

RBI also adjusted the Standing Deposit Facility rate to 5.15% and revised the Marginal Standing Facility rate and Bank rate to 5.65%.

The global economic situation has naturally impacted the Indian economy. During the current financial year, up to August 3, 2022, India has witnessed large portfolio outflows of $13.3 billion.

The production of capital goods recorded double-digit growth in May with the import of capital goods witnessing robust growth. The manufacturing PMI rose to an 8-month high of 56.4 in July, although the services PMI fell to 55.5 from an 11-year high of 59.2 in June.

Bank credit growth accelerated to 14% year-on-year as of July 15, 2022, from 5.4% in July 2021.

Since the domestic economy faces headwinds from global forces, RBI has retained the real GDP growth projection for FY23 at 7.2%.

The expected GDP growth in the Apr-Jun quarter is projected at 16.2% and 6.2% in the Jul-Sep quarter. The growth during the Oct-Dec quarter is expected to be at 4.1% and slightly down at 4% during the Jan-Mar quarter. Real GDP growth for Q1 in FY24 is projected at 6.7%.

June 2022 was the sixth consecutive month when the CPI inflation remained at or above the upper tolerance level of 6%. RBI retained the retail inflation forecast at 6.7% and expects the inflation to average at 7.1% in the Jul-Sep quarter and 6.4% in the Oct-Dec quarter.

In the first quarter of 2023, the CPI inflation is expected to come down to 5.8% and is then further expected to fall to 5% in the Apr-Jun quarter of 2023.

RBI has hiked interest rates by 1.4% since May to 5.4%, this has also increased interest rates on 91-day T-bills, commercial papers (CPs), and certificates of deposit (CDs).


The rate hikes also triggered an upward adjustment in the benchmark lending rates by the banks. Term deposit rates are also increasing which should help the availability of funds with banks.

Surplus liquidity in the banking system amounted to ₹3.8 lakh crore during Jun-Jul 2022 from ₹6.7 lakh crore in Apr-May 2022. To relieve the liquidity stress, the RBI conducted a variable rate repo auction of ₹50,000 crores of 3 days maturity on July 26, 2022.

During the current financial year (up to August 4), the US dollar index (DXY) has appreciated by 8.0% against a basket of major currencies. The Indian Rupee has depreciated by 4.7% against the US dollar during the same period.

The merchandise trade deficit expanded to $100bn in the Apr-Jul quarter of 2022. Demand for services like exports, especially IT services, remained buoyant in Q1 despite global uncertainty. Travel and transport services exports also improved in Q1 FY23 on a year-on-year basis.

Net foreign direct investment was at $13.6 bn in the first quarter of FY23 compared to $11.6 billion in the first quarter of FY22. Foreign portfolio investments turned positive in Jul 2022. The RBI has also used its forex reserves to curb volatility in the exchange rate.