Announcing the decision of the MPC that met from August 3 to 5, RBI Governor Shaktikanta Das said on Friday that the financial sector is well capitalised and sound. India’s foreign exchange reserves, supplemented by net forward assets, provide insurance against global spillovers.
Das said; “Our umbrella remains strong. We have witnessed large portfolio outflows to the tune of $13.3 billion during the current financial year so far (up to August 3). Nevertheless, with strong and resilient fundamentals, India is expected to be amongst the fastest growing economies during 2022-23 according to the IMF, with signs of inflation moderating over the course of the year. Export of goods and services together with remittances are expected to keep the current account deficit within sustainable limits.”
Looking ahead, a good progress of the southwest monsoon and kharif sowing would support rural consumption. Urban consumption is expected to benefit from the demand for contact-intensive services, better performance of corporates and improving consumer optimism. Das added: “The increase in capacity utilisation, government’s capex push and large expansion in bank credit should support investment activity. The real GDP growth projection for 2022-23 has retained at 7.2%. Surplus liquidity in the banking system moderated to Rs 3.8 lakh crore during June-July 2022 from Rs 6.7 lakh crore during April-May. The sharp moderation in surplus liquidity from July 20 resulted in money market rates firming up above the repo rate. To alleviate the liquidity stress, the RBI conducted a variable rate repo auction of Rs 50,000 crore of three days maturity on July 26, 2022. Going forward the RBI will remain vigilant on the liquidity front and conduct two-way fine-tuning operations as and when warranted – both variable rate repo (VRR) and variable rate reverse repo (VRRR) operations of different tenors, depending on the evolving liquidity and financial conditions.”
While the banking system remains well capitalised and profitable, a deleveraged corporate sector augurs well for sustaining the recovery. RBI has also used its foreign exchange reserves accumulated over the years to curb volatility in the exchange rate. Despite the resultant drawdown, India’s foreign exchange reserves remain the fourth largest globally, Das noted.