RBI Policy at a Glance: Here's your quick guide

Synopsis

The Reserve Bank of India’s Governor-led Monetary Policy Committee (MPC) concluded its recent meeting, maintaining the repo rate at 6.5%. This decision comes amidst concerns over inflation, with retail inflation remaining near the upper end of the central bank’s comfort zone. Key highlights include the forecasted GDP growth rate of 7% for FY25, the projection of CPI inflation at 4.5% for the same period, and the decision to keep inflation forecast unchanged at 5.4% for the fiscal year.

RBI Policy AT a Glance ET OnlineET Online

Reserve Bank of India Governor Shaktikanta Das-headed rate-setting panel on Thursday concluded its three-day Monetary Policy Committee (MPC) review meeting. RBI left the repo rate unchanged at 6.5 per cent while retail inflation remains near the higher end of the central bank’s comfort zone.

For almost a year, the Reserve Bank has kept the short-term lending rate or repo rate stable at 6.5 per cent. The benchmark interest rate was last raised in February 2023 to 6.5 per cent from 6.25 per cent to contain inflation driven mainly by global developments.

RBI Governor Das delivered the policy speech at 10:00 a.m. today.

Monetary Policy Statement by Shaktikanta Das, Governor of the Reserve Bank of India (RBI)

Synopsis: Reserve Bank Governor Shaktikanta Das will announce the bi-monthly policy on Thursday, February 8. The announcement is expected to maintain a status quo on the key interest rate due to inflation remaining near the upper tolerance level of 6%. Although retail inflation has declined since reaching a peak of 7.44% in July 2023, it remains high at 5.69% in December 2023. Experts anticipate that the central bank will not change the repo rate for the sixth time in a row, which currently stands at 6.5%, mainly due to concerns over inflation. The government has mandated the central bank to ensure that the retail inflation based on the Consumer Price Index (CPI) remains at 4%, with a margin of 2% on either side. The MPC, led by Governor Das, is responsible for deciding the policy repo rate to achieve the inflation target while keeping in mind the objective of growth.

Key numbers:

  • Decided to keep the repo rate unchanged at 6.5%
  • RBI has forecast Indian economy to grow at 7 per cent in FY25.
  • Forecast each of the quarters in FY25 to grow at 7.2%, 6.8%, 7% and 6.9% respectively.
  • CPI Inflation projection for FY25 at 4.5%.
  • RBI left its inflation forecast for this fiscal year unchanged at 5.4%.
  • Forex reserves as of Feb 2, 2024 – $622.5 billion, comfortable for meeting foreign obligations.
  • Q3FY24 and Q4FY24 GDP growth rates pegged at 6.5% and 6.0% respectively.
  • Real GDP growth rate for Q1FY25, Q2FY25 and Q3FY25 pegged at 6.7%t, 6.5% and 6.4% respectively.
  • Repo rate decision wasn’t unanimous this time; 5:1. Prof. Jayanth R. Varma voted for a change in stance to neutral.

MPC at a glance: Decoding RBI’s decisions for you:

RBI’s concern on elevated debt:

  • Elevated levels of public debt raising serious concerns on macroeconomic stability in many countries, including some of the advanced economies.
  • The public debt levels in advanced economies much higher than those in emerging market economies.
  • The challenges of debt sustainability in an environment of high-interest rates and low growth at the global level can become new sources of stress.
  • Reducing debt burdens is necessary to create fiscal space for new investments in priority areas, including green transition.

Security of digital payments:

  • RBI has prioritised security of digital payments, in particular the requirement of Additional Factor of Authentication (AFA), said Das.
  • RBI proposed to adopt a principle-based “Framework for authentication of digital payment transactions.”

Review of Regulatory Framework for Electronic Trading Platforms:

  • RBI to issue revised regulatory framework for electronics trading platform.
  • In 2018, RBI had put in place a regulatory framework for ETPs for executing transactions in financial instruments regulated by it.
  • Under the framework, thirteen ETPs operated by five operators have since been authorised.
  • Market makers have also made requests to access offshore ETPs offering permitted Indian Rupee (INR) products.



RBI Guv on inflation:

  • Indian economy has performed remarkably well in the recent years.
  • Growth is accelerating and outpacing most forecasts, while inflation is on a downward trajectory.
  • The softening in core inflation (CPI inflation excluding food and fuel) continued across both goods and services.
  • Headline inflation, after moderating to 4.9% in Oct, rose to 5.7% in Dec 2023; primarily due to food inflation, mostly vegetables.
  • Uncertainties in food prices continue to impinge on the headline inflation trajectory.

RBI on global growth:

  • Global growth is expected to remain steady in 2024, with heterogeneity across regions
  • Though global trade momentum remains weak, it is exhibiting signs of recovery and is likely to grow faster in 2024.


Streamlining Aadhaar Enabled Payment System:

  • RBI proposed to streamline the onboarding process, including mandatory due diligence, for AePS touchpoint operators, to be followed by banks.
  • Additional fraud risk management requirements will also be considered.


Mandatory Key Fact Statement (KFS) for Retail & MSME Loans:

  • RBI decided to mandate all regulated entities to provide the ‘Key Fact Statement’ (KFS) to borrowers for all retail & MSME loans.
  • Currently KFS is specifically mandated in respect of loans by scheduled commercial banks to individual borrowers; digital lending by REs; and microfinance loans.


Das quoted Mahatma Gandhi:

Das said, In the current environment, what Mahatma Gandhi said long ago remains relevant and I quote: “I am 11 moving cautiously, watching myself at every step. ….. but there is the fixed determination behind every act of mine…”

RBI MPC FAQs

  1. Why is there an expectation for the RBI to maintain a pause on the key interest rate in the upcoming MPC meet?The expectation for the Reserve Bank to maintain a pause on the key interest rate in the upcoming bi-monthly policy announcement primarily stems from concerns over inflation.
  2. How has retail inflation trended in the current financial year?

    In the current financial year, retail inflation has exhibited a declining trend after reaching a peak of 7.44 percent in July 2023. Although it has moderated since then, retail inflation was recorded at 5.69 percent in December 2023.

  3. What is the role of the Monetary Policy Committee (MPC) in deciding the policy repo rate?

    The role of the Monetary Policy Committee (MPC) in deciding the policy repo rate is to ensure that the inflation target set by the government is achieved.

(You can now subscribe to our Economic Times WhatsApp channel)

moreless

William Murphy

Related post