RBI Monetary Policy Committee Meeting Highlights: The RBI’s Monetary Policy announced its decision on February 8 keeping the repo rate remain unchanged at 6.5 per cent after having raised it by 250 basis points between May 2022 and February 2023. RBI Governor Shaktikanta Das said “India’s potential growth is propelled by structural drivers.” He also mentioned that increasing geopolitical tension impacting supply chain and putting pressure on commodity prices especially crude oil.
FY 25 real GDP growth is projected by RBI at 7%.
CPI headline Inflation rose to 5,2% in December after moderating to 4.2% in October.
5 out of 6 members remain focused on the withdrawal of accommodation to ensure inflation aligns with the target, said Das.
Inflation is moving towards inflation target, said RBI Governor Shaktikanta Das.
“RBI is anticipated to maintain interest rates post its monetary policy meeting on Feb 8, aligning with the government’s significant reduction in fiscal deficit outlined in the recent interim Budget. This cautious stance amid potential inflationary pressures impacts both home and personal loans, aiming to ensure stability in lending and bolster borrower confidence. Looking ahead, optimism prevails for a more favorable lending landscape in the next fiscal year, with an emphasis on home loans outpacing personal loans. The central bank’s commitment to economic stability signals a steady trajectory, supporting informed financial decisions. This stability, particularly in the housing sector, fosters growth and aligns with the government’s proactive housing initiatives,” said Kaushik Mehta, Founder & CEO of RUloans Distributions.
“We think the MPC will refrain from sounding outright dovish amid geopolitical uncertainty and frequent food-price shocks. We expect it to maintain its inflation and GDP forecasts for FY25. However, the Q4-FY25 inflation forecast will be watched to assess the real rate trajectory. MPC member Goyal has indicated a preferred real rate (repo rate less four-quarter-ahead inflation expectations) of 100bps. We expect 50bps of rate cuts between June and August 2024 in a shallow cutting cycle,” said Saurav Anand, Economist, South Asia at Standard Chartered Bank, India.
“Although rates market participants expect no change to policy rates, they remain hopeful of some liquidity support measures. Notwithstanding the recent improvement, interbank liquidity has remained tight since the last MPC meeting. If the central bank were to acknowledge the recent improvement in (core) inflation and the government’s FY25 fiscal consolidation, one could expect a dovish tilt to the announcement. That would support our Positive outlook on Indian Government Bonds (IGBs) and our long 14Y IGBs trade recommendation. We also expect the OIS curve to flatten further,” said Anand.
“We expect India’s Monetary Policy Committee (MPC) to keep the repo rate unchanged and maintain its “withdrawal of accommodation” stance at its 6-8 February meeting. The focus will be on MPC commentary amid a likely continued downtrend in headline CPI. We expect the statement to be more balanced than in December. Comments from the RBI governor in mid-January indicated increased comfort on the inflation trajectory, with increasing visibility on headline inflation trending towards the MPC’s 4% target. A faster pace of fiscal consolidation is also likely to comfort the MPC on the inflation path ahead. The finance minister has targeted a much narrower-than-expected fiscal deficit for both FY24 (ending March 2024) and FY25,” Saurav Anand, Economist, South Asia at Standard Chartered Bank, India.
In the upcoming MPC meeting, the RBI is anticipated to sustain its emphasis on liquidity management, given tight money market conditions where the call money rate hovering over the repo rate. Furthermore, liquidity under the banking system has remained at a deficit since the previous monetary meeting.
Headline Inflation a concern; core inflation stable: Turning to inflation, the headline inflation at higher side of 5.7% in December; driven by higher food prices (especially, pulses, legumes and spices). However, core inflation is stable at below 4%.
CRISIL expects inflation to soften to 4.5% in fiscal 2025 from an estimated 5.5% this fiscal. Lower commodity prices, high-base effect, especially in food inflation, and cooling domestic demand will help moderate inflation. A non-inflationary budget that focusses on asset-creation rather than direct cash support bodes well for core inflation and hence monetary policy, said Dipti Deshpande, Principal Economist at CRISIL.
Ajit Kabi
Research Analyst at LKP Securities
Economic growth for FY24 may be revised upward: As per the first advanced estimate of MOSPI, the economy is likely to grow at 7.3% driven by strong investment growth (projected to grow by 10.3%). Industrial growth to expand by 7.9% in FY24 against 4.4% in the previous year. GST collection, E-way bills, and PMI data shows sign of healthy growth. Nevertheless, the consumption demand is tepid with growth rate of 4.4% in FY24 against 7.5% in FY23. The significant slower growth of consumption demand, which contributes 50% of GDP, raises concern. Agriculture sector is also facing headwinds because of below average rainfall.
Overall the real GDP numbers to stay robust. Against the backdrop of improved economic outlook RBI is likely to increase the growth projection for FY24 to 7.3%.
We expect the MPC to start cutting rates in the June quarter of 2024, said Dipti Deshpande, Principal Economist at CRISIL.
Dipti Deshpande
Principal Economist, CRISIL
The government has been able to budget a reduction in the fiscal deficit while maintaining its capex focus. The proposed reduction of fiscal deficit, therefore, hinges on reduced revenue expenditure thrust and marginally better tax collections. The nominal GDP growth assumption is in line with our forecast and the tax targets also seem doable given improving compliance.
Current Rates
Policy Repo Rate: 6.50%
Standing Deposit Facility Rate: 6.25%
Marginal Standing Facility Rate: 6.75%
Bank Rate: 6.75%
Fixed Reverse Repo Rate: 3.35%
Reserve Ratios
CRR: 4.50%
SLR: 18.00%
Call Rates on the RBI‘s website: 5.00% – 6.56% as of the previous day.
The MPC had met in April before that to assess the macroeconomic situation and decided not to hike the country’s repo rate, keeping the key lending rate at 6.5 percent unanimously. The RBI MPC, with a 5:1 majority, maintained the withdrawal of accommodation stance, RBI Governor Shaktikanta Das had said. The RBI had also stated the real GDP growth projection for FY24 was at 6.5 percent. However, fears of sustained core inflation remain persistent on weather-related vagaries, OPEC+’s surprise announcement and rising commodity prices.
Before August, the MPC meeting was held on June 6-8 and the Central Bank had decided unanimously to keep the policy repo rate unchanged at 6.50 per cent. 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 with the target, while supporting growth.
Before October, the MPC meeting was held on August 8-10 and the Central Bank had decided to keep the key policy repo rate unchanged at 6.5 percent, maintaining the status quo for the third time in a row. The MPC voted in 5:1 majority to maintain the ‘withdrawal of accommodation’ stance to ensure that inflation progressively aligns with the target, while supporting growth, Shaktikanta Das had said. “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,” the RBI governor had added.
Before December, the MPC meeting was held on October 4-6 and the central bank had decided to keep the key policy repo rate unchanged at 6.5 percent, maintaining the status quo for the fourth time in a row. The MPC decided by a majority of 5 out of 6 members to remain focussed at withdrawal of accommodation to ensure inflation aligns to the target by supporting growth.
In the last quarter of FY23, on February 8, the RBI increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.50 percent.
RBI MPC Meeting in December
The last MPC meeting was held on December 6-8 and the central bank had decided to keep the key policy repo rate unchanged at 6.5 percent, maintaining the status quo for the fifth time in a row. “The Reserve Bank of India’s Monetary Policy Committee after a detailed assessment of the evolving macroeconomic developments, has decided unanimously to keep the repo rate unchanged at 6.5 per cent,” RBI Governor Shaktikanta Das had said, amid India’s better-than-expected economic growth.
The Monetary Policy Committee meeting headed by RBI Governor Shaktikanta Das ends today and the MPC will announce its decision on the repo rate. RBI Governor Shaktikanta Das will deliver his monetary policy statement at 10:00 am. This can be watched on the official YouTube channel of RBI.
RBI MPC is expected to continue the pause stance and keep the repo rate unchanged at 6.5 percent. The RBI has raised the repo rate by 250 basis points (bps) since May 2022.
Meet the MPC members
The Monetary Policy Committee (MPC) is composed of three external members and three officials of the RBI. The external members on the panel are Shashanka Bhide, Ashima Goyal, and Jayanth R Varma. Besides Governor Shaktikanta Das, the other RBI officials in MPC are Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor).
Ajit Kabi
Research Analyst at LKP Securities
Economic growth for FY24 may be revised upward: As per the first advanced estimate of MOSPI, the economy is likely to grow at 7.3% driven by strong investment growth (projected to grow by 10.3%). Industrial growth to expand by 7.9% in FY24 against 4.4% in the previous year. GST collection, E-way bills, and PMI data shows sign of healthy growth. Nevertheless, the consumption demand is tepid with growth rate of 4.4% in FY24 against 7.5% in FY23. The significant slower growth of consumption demand, which contributes 50% of GDP, raises concern. Agriculture sector is also facing headwinds because of below average rainfall.
Overall the real GDP numbers to stay robust. Against the backdrop of improved economic outlook RBI is likely to increase the growth projection for FY24 to 7.3%.
Headline Inflation a concern; core inflation stable: Turning to inflation, the headline inflation at higher side of 5.7% in December; driven by higher food prices (especially, pulses, legumes and spices). However, core inflation is stable at below 4%.
Liquidity management: In the upcoming MPC meeting, the RBI is anticipated to sustain its emphasis on liquidity management, given tight money market conditions where call money rate hovering over repo rate. Furthermore, liquidity under banking system remain at deficit since the previous monetary meeting.
Our expectation: In conclusion, the economic outlook remains healthy. As core inflation and wholesale inflation are steady, the headline inflation is likely to settle down in coming periods with the arrival of Rabi harvests.
Policy rate expectations: Given the tightening liquidity condition, RBI is likely to support economic growth with cautious stance on inflation. Consequently, we expect the unchanged policy rate and possibility of shift in stance to NEUTRAL. Additionally, RBI may take steps to improve liquidity conditions. We expect policy rate cut by June-24.
Fiscal Balance: Narrowing the fiscal deficit target, the Govt indicated that the populist spending or incentives may be avoided in preparation for the forthcoming general election.
The Monetary Policy Committee meeting headed by RBI Governor Shaktikanta Das ends today and the MPC will announce its decision on repo rate. RBI Governor Shaktikanta Das will deliver his monetary policy statement at 10:00 am. This can be watched on the official YouTube channel of RBI.
RBI MPC is expected to continue the pause stance and keep the repo rate unchanged at 6.5 per cent. The RBI has raised the repo rate by 250 basis points (bps) since May 2022.