MPC’s First Bi-Monthly Monetary Policy of FY2023-24
The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) recently announced the first bi-monthly monetary policy of FY2023-24. RBI Governor Shaktikanta Das revealed that the MPC has unanimously decided to keep the repo rate unchanged at 6.50%. This key lending rate is the rate at which the RBI lends money to commercial banks. The decision to pause the repo rate is only for this meeting, but the committee will not hesitate to take further action as may be required in its future meetings.
GDP Growth Projection Revised Upwards
The MPC marginally revised the GDP growth projection upwards to 6.50% for the current financial year of FY2023-24 from its earlier estimate of 6.4%. Das said that GDP growth in Q1 of FY24 is expected at 7.8%, followed by 6.2% for Q2, 6.1% for Q3, and 5.9% for Q4. This shows that India’s economy is expected to grow at a steady pace.
Banking and Financial Sector Remains Healthy
Governor Das also talked about the recent upheaval in the banking sector. He stated that the central bank is keeping a close eye on the turmoil in the banking sector in developed countries. However, amidst this volatility, India’s banking and nonbanking financial service sector remain healthy, and financial markets have evolved in an orderly manner. Economic activity remains resilient, and real GDP growth is expected to have been 7 percent in FY23.
Moderating Inflation
Despite the headline inflation moderating, it remains well above the targets of the RBI. These developments have led to heightened volatility in global financial markets. However, the current financial year points towards the softening of inflation. Governor Das said that the war against inflation will continue until there is a durable decline. The central bank has projected inflation to marginally decline to 5.2% in FY24, with 5.1% in Q1, followed by 5.4% in Q2 and Q3, and 5.2% in Q4 of the current financial year.
Maintaining an Agile Approach for Liquidity Management
Governor Das also stated that the RBI will maintain an agile approach for liquidity management to manage the government’s borrowing program in a non-disruptive manner. The current account deficit of India is expected remain moderate in Q4 FY23 and also eminently manageable going forward. The Indian Rupee moved in an orderly manner in FY23, but the RBI will remain watchful of the currency.
Maintaining the Stance on “Withdrawal of Accommodation”
The RBI’s MPC has maintained its stance on “withdrawal of accommodation.” The central bank has raised the repo rate by 250 bps in the last 11 months, since May 2022. The repo rate is one of the primary tools to manage inflation in the country. With inflation still above the central bank’s target, maintaining the repo rate at 6.50% is a necessary step to control inflation.
Month: Current Affairs – April, 2023
Category: Economy & Banking Current Affairs - 2024