Keeping the policy repo rate unchanged at 6.5%, the Reserve Bank of India Governor Shaktikanta Das has announced the RBI’s fourth bi-monthly monetary policy.
While announcing the policy, Das said, “After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, RBI’s monetary policy decided unanimously to keep the Policy Repo Rate unchanged at 6.5%.”
Adding to this, he said, “Macroeconomic stability and inclusive growth are the fundamental principles underlying our country’s progress. The policy mix that we have pursued during recent years of multiple and unparalleled shocks has fostered macroeconomic and financial stability.”
As per his words, the MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
At the previous meet as well, in August, the MPC maintained status quo on repo rate. In fact, in its previous three policy meets, including the one in August, the panel kept interest rates unchanged. Before this, the committee has raised the repo rate by 250 basis points since May last year till April 2023.
Addressing a media personal interaction after the RBI MPC announcements, RBI Governor Shaktikanta Das while answering to a liquidity deficit question, has reportedly said, “Liquidity is not in deficit. It went into deficit in the last 2-3 weeks due to scheduled GST and advance tax payments. But overall, liquidity is surplus.” “We have announced the withdrawal of INR 2,000 notes. So far, we have got back about 3.43 lakh crore, and about 12,000 crore are left. 87% of it has come as bank deposits,” he further noted.
Key Takeaways
Delving into the projections, these are some of the key takeaways from the last day’s policy announcement.
- GDP Projections: The real GDP growth for 2023-24 is projected at 6.5% with Q1 at 8%; Q2 at 6.5%; Q3 at 6%; and Q4 at 5.7%. Earlier this week, the World Bank has estimated India’s GDP growth forecast for the financial year 2023-24 at 6.3%.
- Inflation Forecast: The RBI forecasted the inflation for this financial year at 5.4% despite uneven monsoon showers and as outlook on food prices remain on edge amid a spike in global crude oil prices. The central bank now sees inflation for Q2, Q3 and Q4 at 6.4%, 5.6% and 5.2%, respectively.
- CPI-based Inflation: RBI has projected the Consumer Price Inflation (CPI)for Q2 at 6.4%, Q3 at 5.6%, and Q4 at 5.2%. CPI inflation for the first quarter of 2024-25 is projected at 5.2%.
- Urban/Rural Consumption: As per the RBI Governor, there is a steady expansion seen in urban or rural consumption. “Looking ahead, domestic demand conditions are likely to benefit from sustained buoyancy in services, consumer and business optimism, government’s continued thrust on capex, healthy balance sheets of banks and corporates, and supply chain normalisation,” said Das.
- Payments infrastructure scheme: RBI has extended the Payments Infrastructure Development Fund (PIDF) scheme by another two years till December 31, 2025. It will now include beneficiaries of the PM Vishwakarma scheme.
- Card-on-File Tokenization Facility: RBI proposed to introduce Card-on-File (CoF) token creation facilities directly at the issuer bank level. This is expected to enhance convenience for cardholders to get tokens created and linked to their existing accounts with various ecommerce applications.
- Credit Norms: RBI has allowed NBFCs classified as middle and base layer entities, to utilise credit risk mitigation tools to offset their exposure with eligible credit risk transfer instruments. The step has been taken to harmonise norms across NBFCs; currently, upper layer NBFCS under the Large Exposures Framework, are permitted to use Credit Risk Mitigation (CRM) instruments to reduce their exposure to a counterparty.
- Gold Loans: It has been decided to increase the existing limit for gold loans under the bullet repayment scheme from INR 2 lakh to INR 4 lakh in respect of Urban Cooperative Banks who have met the overall targets and segmentalized targets under the priority sector lending as of 31st March 2023.
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