RBI MPC Meeting: Growth resilient but inflation remains a risk; key takeaways from RBI policy decision
RBI keeps policy rates unchanged despite spike in food inflation and US rate hike. GDP growth predicted at 6.5% in FY24.
On expected lines, the Reserve Bank of India chose to keep policy rates and stance unchanged on Thursday despite the recent spike in food inflation and a rate hike by the US Fed in July.
Shaktikanta Das led the monetary policy committee (MPC) unanimously decided to keep the repo rate unchanged at 6.50 per cent for the third straight meeting in a row. The MPC also decided to keep the policy stance unchanged as ‘Withdrawal Of Accommodation’.
“The monetary policy committee unanimously decided to keep the repo rate unchanged at 6.50 per cent. Consequently, the standing deposit facility (SDF) rate remains at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent," said Das.
Read more: RBI monetary policy: Shaktikanta Das led MPC keeps repo rate steady at 6.50%. Predicts 6.5% GDP growth in FY24
Here are the key highlights of RBI's August policy meeting:
India's robust growth outlook
The RBI Governor underscored that the Indian economy is the fifth largest economy in the world and India's contribution to global growth is to the tune of 15 per cent.
RBI projected real GDP growth for FY24 at 6.5 per cent with Q1 at 8 per cent, Q2 at 6.5 per cent, Q3 at 6.0 per cent, and Q4 at 5.7 per cent. Real GDP growth for Q1FY25 is projected at 6.6 per cent.
Inflation remains a challenge
Das said while inflation has eased, the job is not done. He emphasised RBI remains focused to achieve an inflation target of 4 per cent for a longer period. He said that amid challenges in the global economy, India has managed to keep inflation under control.
“The MPC remains resolute in its commitment to aligning inflation to the 4 per cent target and anchoring inflation expectations,” said Das.
“Latest CPI inflation projections for FY24, assuming a normal monsoon, is revised to 5.4 per cent, with Q2 at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent. CPI inflation for Q1FY25 is projected at 5.2 per cent,” said Das.
Headline inflation projection for Q2 of 2023-24 has been revised up substantially, primarily due to the price shock from vegetables.
“The frequent incidences of recurring food price shocks pose a risk to the anchoring of inflation expectations, which has been underway since September 2022,” Das said.
Measure to absorb surplus liquidity
Governor Das pointed out that there is surplus liquidity in the system because of the return of ₹2000 banknotes to the banking system, RBI’s surplus transfer to the government, pick up in government spending and capital inflows.
He underscored excessive liquidity can pose risks to price stability and also to financial stability.
"It has been decided that with effect from the fortnight beginning August 12, 2023, scheduled banks shall maintain an incremental
cash reserve ratio (I-CRR) of 10 per cent on the increase in their net demand and time liabilities (NDTL) between May 19, 2023, and July 28, 2023. This measure is intended to absorb the surplus liquidity generated by various factors," Das said.
Das added that this is a temporary measure for managing the liquidity overhang.
“The I-CRR will be reviewed on September 8, 2023, or earlier with a view to returning the impounded funds to the banking system ahead of the festival season. I must add that the existing cash reserve ratio (CRR) remains unchanged at 4.5 per cent,” said Das.
Read more: RBI MPC Meeting: ‘Rate hike of 250 bps points working its way,' says Governor Shaktikanta Das
Revision in IDF framework
Das announced the revision in the regulatory framework for Infrastructure Debt Funds (IDFs).
"The key changes in the revised framework are: (i) withdrawal of the requirement to have a sponsor for the IDFs, (ii) allowing IDFs to finance toll-operate-transfer (ToT) projects as direct lenders, (iii) permitting IDFs to raise funds through ECBs, and (iv) making tri-partite agreements optional for PPP projects," said Das.
On floating-interest loans
RBI governor proposed to put in place a transparent framework for reset of interest rates on floating-interest loans.
"The framework will require regulated entities to (i) clearly communicate with borrowers for resetting the tenor and/or EMI; (ii) provide options for switching to fixed-rate loans or foreclosure of loans; (iii) disclose various charges incidental to the exercise of the options; and (iv) ensure proper communication of key information to borrowers," said Das, adding, these measures will further strengthen consumer protection.
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Business NewsEconomyRBI MPC Meeting: Growth resilient but inflation remains a risk; key takeaways from RBI policy decision
First Published:10 Aug 2023, 11:51 AM IST
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