The first Monetary Policy Committee (MPC) meeting of the fiscal year 2023-24 has concluded with the Reserve Bank of India (RBI) Governor Shaktikanta Das’ address. While the central bank’s decision to keep the key interest rate, repo rate unchanged at 6.50 per cent has surprised many, the RBI has also clarified that the pause in rate hike is only for this time.
The decision to keep the repo rate unchanged has been unanimous by all members of the MPC – Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth, R. Varma, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Governor Shaktikanta Das.
During the address, RBI Governor Das said, “The year 2023 began on a promising note.....Inflation globally has moderated but its dissent to the target is proving to be long.... Our war against inflation has to continue.... We are keeping a close watch on the banking sector turmoil in some countries.”
As the management of inflation and growth becomes imperative for RBI, here are the key takeaways from RBI Governor’s speech at the end of April’s monetary policy meeting.
RBI MPC 2023 – Key Highlights of Governor Shaktikanta Das’ address
- In the recently concluded MPC address, the RBI Governor has announced that the central bank will keep the repo rate unchanged at 6.50 per cent after a cumulative hike of 250 bps till date. The governor, however clarified that a pause in the repo rate hike is only for this MPC meeting, signalling that the RBI may resort to rate hike again, if the micro and macro-economic situation demands.
- Consequently, due to a pause in the repo rate hike, the standing deposit facility (SDF) rate will remain unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
- The MPC also decided keep its stance unchanged. It would stay focused on ‘withdrawal of accommodation’ in order to ensure that “inflation progressively aligns with the target, while supporting growth.
- The RBI changed the real GDP growth forecast to 6.5 per cent. Governor Das also gave the GDP growth projections for other quarters as - Q1-7.8 per cent, Q2- 6.2 per cent, Q3-6.1 per cent, and Q4- 5.9 per cent.
- The central bank has also set an objective of meeting the “medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.”
- As far as the Indian Rupee goes, Governor Das said, “We remain watchful and focussed on maintaining the stability of Indian rupee.”
- India’s Current Account Deficit (CAD) is expected to remain moderate in the Q4FY23 and also in FY24 at a level that is viable and eminently manageable.
- In the address, the RBI has emphasised on the expansion of UPI footprint. Hence, the central bank has now permited the operation of pre-sanctioned credit lines at banks to widen and expand the scope of UPI.
- Governor Das has also announced that the central bank has decided to set up a ‘centralised web portal for unclaimed deposits’. This means that this new portal will allow one to search across bank accounts, widening access of depositors to information on such deposits. It will help depositors and beneficiaries in getting back their unclaimed deposits.
- Apart from this, the central bank has also announced that banks with IBUs will now be permitted to offer non-deliverable Forex Derivative Contracts involving Indian rupee, to resident users in onshore market.
In response to the central bank’s decision of keeping the repo rate unchanged, Dr Niranjan Hiranandani, Vice Chairman , NAREDCO National said, “In contrast to the World Bank, India Inc. applauds the RBI's decision to pause the rate hike cycle. This act of relief will restore confidence in homebuyers’ sentiment and boost demand rally in the real estate. The industry body now calls for fiscal intervention from the Government of India to cool the inflationary heat caused by persistent geopolitical turbulence caused by the collapse of foreign banks, supply chain challenges, and global financial instability.”
Relaying similar sentiments of appreciation, Nilesh Shah, MD, Kotak Mahindra AMC said, “The RBI’s pause is like Sachin’s stroke on a tricky pitch but with eyes set on having the luxury of hitting the ball where ever he wanted....The market expects the RBI to fetch maximum run and win the match on inflation and growth, no matter which direction they hit the ball.”