RBI Monetary Policy HIGHLIGHTS: Repo rate unchanged at 6.50%

“The decision of status quo on Policy Rates and stance by MPC is as per our expectations and a welcome move. MPCs emphasis on keeping Inflation target at 4 per cent in the long run demonstrates RBI’s commitment to support sustainable growth while maintaining financial stability. Despite global headwinds, RBI has raised GDP forecast to 7 per cent from 6.5 per cent for FY24 demonstrating confidence in domestic growth levers. RBI would continue to remain watchful and ready to act on evolving domestic and global developments as warranted.”

– Sanjay Agarwal, Founder, MD & CEO, AU Small Finance Bank

“As repeatedly stressed by us both in the print and electronic media, e.g., on October 10, October 11, December 5, December 6 and 7, 2023, the RBI kept the benchmark Policy rates unchanged and also retained the stance of the Policy as “withdrawal of accommodation” on the basis of a comprehensive assessment of the global and domestic environment. This Policy is entirely in conformity with our pre-policy expectations. In view of the evolving growth-inflation trade-off, the MPC took the right call in holding the rates steady.”

– Manoranjan Sharma, Chief Economist, Infomerics Ratings

“A sustained GDP growth forecast and a manageable inflation has helped RBI to maintain the status quo on the key policy rates. The pause on the interest rate is expected to push sentiments further for home buyers, and this continued pause in rates is likely to boost the real estate sector significantly. Expected inflation within the comfortable range will further rekindle the hope of a declining rates regime.”

“From being a part of fragile 5 some time back to having GDP growth revised upwards to 7 per cent when global growth has become fragile is the summary of the good work done by the RBI and the government in the most challenging times.The RBI policy is continuity of the good work done in the past. Inflation within target range, yet the vigil is on. Growth revised upwards. Financial system is healthy and pushed to stay ahead of the curve on digitisation. Truly reminding of Glen Maxwell Inning against Afghanistan in the world cup.”

– Nilesh Shah, MD, Kotak Mahindra AMC

“We have now reached a stage when every action has to be thought through even more carefully to ensure overall macroeconomic and financial stability; more so, because the conditions ahead could be fickle. We have to remain vigilant and ready to act, as per the evolving outlook. India is better placed to withstand the uncertainties compared to many other countries,” said Shaktikanta Das.

“The limit for various categories of UPI transactions has been reviewed from time to time. It is now proposed to enhance the UPI transaction limit for payment to hospitals and educational institutions from Rs 1 lakh to Rs 5 lakh per transaction. This will help the consumers to make UPI payments of higher amounts for education and healthcare purposes,” said RBI Governor Shaktikanta Das.

“In October 2023, both merchandise exports and imports came back into the expansionary zone. Services exports remained buoyant during Q2 FY 2023-24. India has remained the top remittance-receiving country. The net balance under services and remittances is expected to partly offset India’s current account deficit and keep it within the parameters of viability,” said RBI Governor Das.

“The Indian rupee has exhibited low volatility compared to its EME peers in the calendar year 2023, despite elevated US treasury yields and a stronger US dollar. The relative stability of the Indian rupee reflects the improving macroeconomic fundamentals of the Indian economy and its resilience in the face of formidable global tsunamis,” said Shaktikanta Das.

“Economic activity exhibited buoyancy in Q2 aided by strong domestic demand. GDP posted a robust growth of 7.6 per cent in Q2:2023-24, driven by investment and government consumption,” said Shaktikanta Das.

“Turning to Q3, two-third of rabi sowing has been completed despite late harvest of kharif crops in some states. Manufacturing sector gained strength with easing input cost pressures and pick up in demand conditions. Eight core industries recorded healthy growth in October and continued their high growth since June this year. The purchasing managers’ index (PMI) for manufacturing rose in November. The services sector buoyancy has remained intact as reflected in high frequency indicators. GST collections at Rs 1.68 lakh crore in November 2023 were buoyant. Services PMI displayed healthy expansion in November,” he said.

“The global economy continues to remain fragile. World trade is decelerating amidst global tide of protectionism. Despite significant restoration of global supply chains, factors like elevated debt levels, lingering geopolitical hostilities and extreme weather conditions aggravate the risks to global growth and inflation outlook.”

“We have observed various issues related to the web aggregation of loan products that adversely affect consumers’ interests. In response to these concerns, the Reserve Bank of India (RBI) will establish a regulatory framework for such practices. This initiative aims to enhance transparency in digital lending,” said RBI Governor Das.

Policymakers must be aware of risks of overtightening policy. We have now reached a stage where every action must be weighed even more carefully. We must be aware of risks from shocks anywhere and anytime, said the RBI Governor.

During the bi-monthly MPC meeting, RBI Governor Shaktikanta Das announced that India’s foreign exchange reserves reached $604 billion for the week ending December 1. This marked an increase of $2.54 billion compared to the previous week’s reserves, which stood at $597.94 billion as of November 24.

Net inflows on account of ECBs and NRI deposits are much higher, said RBI Governor Das.

We have noticed high utilisation of MSF and SDF by banks. We have decided to allow reversal of liquidity facilities under both SDF and MSF even on weekends. It is expected that this will facilitate better fund management. This will be reviewed in 6 months or earlier, said Shaktikanta Das.

RBI Monetary Policy Live: RBI has successfully reduced its balance sheet well within time – from 28.6% to 23.3 % of GDP in FY23 and to 21.6% of GDP in December 2023, said RBI Governor Shaktikanta Das.

RBI Governor Shaktikanta Das said that inflation outlook could be considerably influenced by uncertain food prices.

CPI inflation is projected at 5.4% for FY24. For Q3, it is projected at 5.6% and at 5.2% for Q4. CPI inflation projected at 5.2% Q1 FY25, 4% in Q2, 4.7% in Q3, said Shaktikanta Das.

RBI Governor Shaktikanta Das said that FY24 real GDP growth is projected at 7%. Real GDP growth for the next year is projected at 6.7 per cent in Q1, 6.5 in Q2 and 6.4 in Q3.

There has been broad-based easing in core inflation, which is indicative of successful disinflation through monetary policy actions, said Shaktikanta Das. The near-term outlook however is masked by risks to food inflation, which might lead to an inflation uptick in November and possibly in December, he added. This needs to be watched for second-round effects, if any.

RBI Monetary Policy Committee maintains the stance of “Withdrawal of Accommodation”.

Headline inflation has receded from the highs of last year, it remains above target in many countries, said RBI Governor Shaktikanta Das.

RBI MPC has decided to keep the repo rate remains unchanged at 6.50% by a unanimous decision. This is the fifth meeting wherein the MPC decided to maintain the status quo on the repo rate. The MPC last raised this rate by 25 bps to 6.50% at its meeting in February 2023. 5 out 6 MPC members voted in favour of withdrawal of accommodation, said Shaktikanta Das.

Watch RBI Governor Shaktikanta Das’ Monetary Policy speech here:
https://www.youtube.com/watch?v=-CfVDL1jYtc

After a strong growth of 7.8 per cent in the first quarter, the second quarter reading too came in significantly higher and well above estimates at 7.6 per cent growth. This takes the first half GDP growth to a robust 7.7 per cent.

India’s retail inflation based on the Consumer Price Index (CPI) fell to a four-month low of 4.87% in October from 5.02% in September, mainly due to the statistical effect of a high base. In October 2022, CPI inflation was 6.77%.

Food inflation, based on CFPI, came in at 6.61% in October as compared to 6.62% in the previous month. But this was also on account of a high-base effect which depressed year-on-year inflation rates in October from the levels seen in September, as sequentially indices of all the major food items barring ‘oils and fats’ rose.

“Despite challenges in certain pockets like rural demand and agricultural output, the overall economic outlook has improved significantly since that last policy meeting in October. Given the better-than-expected economic growth in Q2FY24, we expect the RBI to revise up its growth projections from 6.5 per cent by 20-30 bps. Furthermore, the headline inflation has eased significantly, and core inflation remains relatively stable close to 4 per cent. However, food price volatility remains a cause of concern and can potentially keep headline inflation elevated in the coming months. Liquidity conditions have tightened, and borrowing costs remain elevated. Given the current circumstances, the RBI will likely continue supporting economic growth, while remaining cautious on inflation. Thus, we anticipate that the RBI will keep its policy rates unchanged, while adhering to its stance of “withdrawal of accommodation”. We do not anticipate any further rate hikes by the RBI in this fiscal year. The MPC is expected to consider rate cuts after the first quarter of the upcoming fiscal year.”

– Rajani Sinha, Chief Economist, CareEdge

“RBI action to increase risk weights on banks unsecured lending appears timely given the second quarter GDP growth at 7.6%. Also RBI’s growth and inflation estimates have been fairly accurate. GDP for FY24 is likely to exceed 6.5% and inflation in FY24 is likely to average 5.40% in line with RBI estimates. Since the last policy, global yields have trended lower reflecting expectation of pivot/ easing in CY 2024 by global central banks. Given ~4.5% inflation estimate for FY25, there is a case for RBI to change the monetary policy stance to “neutral”, however, RBI may prefer to be in “wait and watch” mode, keeping rates and monetary policy stance unchanged.”

– Deepak Agrawal, CIO-Debt, Kotak Mutual Fund

“The RBI MPC is likely to hold rates at its forthcoming meeting. However, its commentary on the way forward will be keenly watched and analyzed. Given the buoyant GDP numbers and sticky inflation (including food), it may signal heightened vigilance on demand trends in the economy and on CPI and its components. It could sound hawkish as far as the transmission of rates and keeping liquidity tight is concerned. The rate cuts may have to wait till at least next fiscal year.”

– Deepak Jasani, Head of Retail Research, HDFC Securities

“We expect a sustained status quo in policy stance. The economy is picking momentum so there will be demand pressure on inflation. Besides, the US Federal reserve is also likely to keep its policy stance hawkish. Furthermore, the recent impact of winter rain on the Rabi crop, coupled with lower crop production in the last quarter, is anticipated to constrain the supply side, thereby exerting upward pressure on food prices, keeping them elevated. All these factors contribute to the vigilant approach that RBI may take up.”

– Rumki Majumdar, Economist, Deloitte India