RBI 3-Day MPC Meeting Concludes Today: Here Are Top 5 Takeaways From Today’s RBI Meet

Market Consensus that the Reserve Bank of India (RBI) will keep the repo rate unchanged came true after the RBI Governor on Friday announced his decision to keep the rate steady at 6.50% for the fourth time in a row. Today, the RBI Governor Shaktikanta Das said, "Taking into account the evolving inflation-growth dynamics and the cumulative policy repo rate hike of 250 basis points which is still working through the economy, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting. The transmission of the 250 basis points (bps) increase in the policy repo rate to bank lending and deposit rates is still incomplete and hence the MPC decided to remain focused on withdrawal of accommodation."

Das added that the MPC remains highly alert and prepared to undertake timely policy measures, as may be necessary, in order to align inflation to the target and anchor inflation expectations.

The Governor said that RBI has identified high inflation as a major risk to macroeconomic stability and sustainable growth and given this the central bank's monetary policy is focused on aligning inflation to the 4% target on a durable basis.

Here are Top 5 Takeaways From RBI MPC Meeting that concluded on October 6:

1. Repo Rate Remains Same At 6.50%

The MPC has unanimously decided to keep the policy repo rate unchanged at 6.50%. Consequently, the standing deposit facility (SDF) rate remains 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 remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.

2. Inflation Outlook Clouded By Uncertainties, Q2FY24 inflation forecast raised from 6.2% to 6.4%

The overall inflation outlook is clouded by uncertainties from the fall in kharif sowing for key crops like pulses and oilseeds, low reservoir levels, and volatile global food and energy prices.

The RBI said," While near-term inflation is expected to soften on the back of vegetable price correction, especially in tomatoes, and the reduction in LPG prices, the future trajectory will be conditioned by a number of factors. For Kharif crops, the area sown under pulses is below the level a year ago. Kharif onion production needs to be watched closely. Demand-supply mismatches in spices are likely to keep these prices at elevated levels. The inflation trajectory will also be shaped by El Niño conditions and global food and energy prices. Together with global financial market volatility, these factors pose risks to the outlook."

Taking all these factors into consideration, CPI inflation is projected at 5.4% for 2023-24, with Q2 at 6.4%, Q3 at 5.6% and Q4 at 5.2%. The risks are evenly balanced. CPI inflation for Q1:2024-25 is projected at 5.2%.

3. GDP Growth Forecast Remains Same

While domestic demand conditions are likely to benefit from sustained buoyancy in services, consumer and business optimism, the government's continued thrust on capex, healthy balance sheets of banks and corporates, and supply chain normalization; headwinds from geopolitical tensions and geoeconomic fragmentation, volatility in global financial markets, global economic slowdown, and uneven monsoon, pose risks to the outlook. The real GDP growth for 2023-24 is projected at 6.5% with Q2 at 6.5%; Q3 at 6.0%; and Q4 at 5.7%. The risks are evenly balanced. Real GDP growth for Q1:2024-25 is projected at 6.6%.

4. OMO-sales (Open Market Operation sales) To Manage Liquidity Consistent With Monetary Policy Stance On Cards

The RBI Governor today said the release of the remaining impounded I-CRR funds tomorrow along with a pick-up in government spending are expected to ease liquidity conditions. However, festival time increases in currency demand can act as a counterbalancing factor.

Das said, "It is a turning pitch and we will play our shots carefully. Going forward, while remaining nimble, we may have to consider OMO sales (Open Market Operation sales) to manage liquidity, consistent with the stance of monetary policy. The timing and quantum of such operations will depend on the evolving liquidity conditions."

5. Banking system in India continues to be resilient, India poised to become the new growth engine of the world

Das said that the Indian banking system continues to be resilient, backed by improved asset quality, stable credit growth, and robust earnings growth.

"The twin balance sheet stress that was encountered a decade ago has now been replaced by a twin balance sheet advantage with healthier balance sheets of both banks and corporates. India is poised to become the new growth engine of the world," he added.