Image for representation | Photo Credit: Reuters
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), based on the macroeconomic situation and its outlook, to take a unanimous decision on Thursday to act with urgency to keep the policy repo rate unchanged at 6.5% Needed
Consequently, the standing deposit facility (SDF) rate will remain unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.
The MPC also decided, by a majority of 5 out of 6 members, to focus on a return to accommodation to ensure that inflation progressively aligns with the target, while supporting growth.
Explaining the MPC’s rationale for these decisions on the policy rate and stance, Governor Shaktikanta Das said in his monetary policy statement, “While recent high-frequency indicators suggest some improvement in global economic activity, the outlook is now additional negative.” Risk aversion has diminished the concern of financial stability.
Headline inflation is easing but remains well above central banks’ targets. These developments have increased volatility in global financial markets, as largely reflected in the two-way divergence,” he said.
He said that amid this volatility, India’s banking and non-banking financial services sectors have remained strong and financial markets have grown in an orderly manner.
“Economic activity remains resilient and real GDP growth is expected to remain at 7% in 2022-23. However, consumer price inflation has risen since December 2022, driven by price pressures in cereals, milk and fruits. Core inflation remains high,” he said.
Stating that the monetary policy actions taken since May 2022 are still working through the system, he said the MPC decided to keep the policy rate unchanged to assess the progress made so far, while The rising outlook for inflation is being closely monitored.
“The MPC will not hesitate to take necessary action in its future meetings,” he asserted.
Mr Das said prolonged geopolitical tensions and global financial market volatility pose downside risks to the outlook. Taking all these factors into account, real GDP growth for 2023-24 is estimated at 6.5%, up from 7.8% in Q1; Q2 at 6.2%; Q3 at 6.1%; and Q4 at 5.9%. The risks are evenly balanced, he said.
Commenting on inflation, Shri Das said that rising uncertainty in international financial markets and imported inflationary pressures need to be closely monitored.
Taking into account various factors and assuming an annual average price of crude oil (Indian basket) of $85 per barrel and a normal monsoon, CPI inflation is projected to ease to 5.2% for 2023-24; 5.1% with Q1; Q2 at 5.4%; Q3 at 5.4%; and Q4 at 5.2%. The risks are evenly balanced.