The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI’s) on Wednesday announced a 25 basis point (bps) hike in the repo rate to 6.5 per cent. The MPC also decided by a majority of 4 out of 6 members to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.
Here Are Some Of The Key Takeaways From Monetary Policy Committee Announcements
- The MPC decided by a majority of 4 members out of 6 to increase the policy repo rate by 25 basis points to 6.50 per cent, with immediate effect. Consequently, the standing deposit facility(SDF) rate will stand revised to 6.25 per cent; and the marginal standing facility (MSF) rate and the Bank Rate to 6.75 per cent.
- Shaktikanta Das said that the RBI MPC projected India’s GDP growth at 6.4 per cent for 2023-2024.
- The governor said that the RBI sees GDP growth in April-June 2023 at 7.8 per cent versus 7.1 per cent earlier, while in July-September 2023 at 6.2 per cent versus 5.9 per cent. In October-December 2023 GDP growth is seen at 6 per cent and in January-March 2024 GDP growth is viewed at 5.8 per cent.
- On the inflation, Das said that the retail inflation is expected to average 5.6 per cent in the 4th quarter of 2023-24. “Core inflation remains sticky,” he pointed out. The CPI inflation was seen at 5.3 per cent in FY24, Das said. The inflation forecasts assume the price of India’s crude oil basket at $95 per barrel.
- Das announced that the RBI proposes lending, borrowing of G-Sec. “Systemic liquidity increase going ahead will be moderated by TLTRO, LTRO maturities.”
- The RBI governor also mentioned that the government bond market timings were restored to 9 am to 5 pm.
- RBI Governor Shaktikanta Das said that the global economic outlook does not look as grim now as it did a few months ago. Growth prospects in major economies have improved, while inflation is on a descent, though it still remains well above the target in major economies.
- The governor added that weak external demand and the uncertain global environment, however, would be a drag on domestic growth prospects.
- The MPC will continue to maintain strong vigil on the evolving inflation outlook so as to ensure that it remains within the tolerance band and progressively aligns with the target, the governor said.
- He said that the Rupee has remained one of the least volatile currencies among its Asian peers in the calendar year 2022 and continues to be so this year also.
- Shaktikanta Das said, “The depreciation and the volatility of the Indian rupee during the current phase of multiple shocks is far lower than during the global financial crisis and the taper tantrum. In a fundamental sense, the movements of the rupee reflect the resilience of the Indian economy.”
- RBI also forecasted that the current account deficit (CAD) is expected to moderate in the second half of the financial year 2022-23 and remain eminently manageable and within the parameters of viability. The current account deficit (CAD) for the first half of 2022-23 stood at 3.3 per cent of GDP. Das said the situation has shown improvement in Q3 of 2022-23 as imports moderated in the wake of lower commodity prices.
- On the financing side, Das said that the net foreign direct investment (FDI) flows remain strong at $22.3 billion during April-December 2022.
- The central bank on Wednesday also permitted UPI payment for all inbound travellers to India for their merchant payments (P2M) while they are in the country. RBI said, “To begin with, this facility will be extended to travellers from G-20 countries arriving at select international airports.”
- The Reserve Bank of India will also launch a pilot project on QR Code based Coin Vending Machine (QCVM) in 12 cities. These vending machines will dispense coins against debit to the customer’s account using UPI instead of physical tendering of banknotes.