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RBI Monetary Policy Committee Meeting: Observation & Next Steps

On December 6th-8th, 2023, the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) met to discuss the current state of the Indian economy and set the benchmark interest rate.

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Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) recently released its quarterly review of the Indian economy, providing valuable insights into current trends and future projections.

Key Takeaways

  • The repo rate remains unchanged at 6.5%, focus on the withdrawal of accommodation continues.
  • GDP growth forecast revised upwards to 7% for FY24, citing robust domestic demand.
  • Inflation management remains a priority, with potential risks from food prices monitored closely.
  • Active liquidity management and a robust financial sector ensure stability despite global uncertainties.
  • Indian rupee stability reflects sound macroeconomic fundamentals and economic resilience.

The Reserve Bank of India’s Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, held its policy meeting on Friday, Dec 8, 2023 and opted to maintain the benchmark repo rate at 6.50%. This marks the fifth consecutive meeting where the MPC has chosen to keep rates unchanged.

Governor Das emphasized that the MPC thoroughly evaluated the current macroeconomic environment before arriving at its decision. The committee highlighted India’s robust economic performance and the need to ensure sustained price stability.

Change in Repo rate and Projections for FY24

The RBI also revised its GDP growth forecast for the current fiscal year (FY24) upwards to 7%, citing robust domestic demand and increased capacity utilization in the manufacturing sector. This is a significant increase from the previous estimate of 6.5%. The upward revision of the GDP growth forecast to 7% indicates the RBI’s confidence in the economy’s resilience and potential. This is further supported by the positive trends observed in private consumption, public sector capex, and manufacturing activity.

While the repo rate remains untouched (6.5%), the MPC continues to prioritize the withdrawal of monetary accommodation, with five out of six members voting in favor of this approach. With this, MSF (Marginal Standing Facility) stands at 6.75% and SDF (Standing Deposit Facility) at 6.25%. The RBI has maintained the CRR at 4.50%, indicating a cautious stance towards controlling inflation despite India’s strong economic growth exceeding expectations.

Regulatory Updates from RBI Monetary Policy Committee Meeting

Major regulatory updates in India’s financial sector:

Foreign Exchange Derivatives

The regulatory framework for these transactions was reviewed and consolidated in 2020, leading to a deeper and more efficient market.

Connected Lending

A unified regulatory framework was introduced for all RBI-regulated entities, aiming to improve credit pricing and management.

Web aggregation of Loan Products

A new framework was announced to enhance customer-centricity and transparency in digital lending through web aggregators.

Fintech Repository

The Reserve Bank Innovation Hub plans to launch a Fintech Repository by April 2024, facilitating partnerships between banks, NBFCs, and FinTechs.

UPI Transaction Limit Increase

The maximum amount for UPI payments to hospitals and educational institutions was proposed to be increased from ₹1 lakh to ₹5 lakhs.

E-Mandate Limit Increase

The e-mandate limit for recurring payments like mutual fund subscriptions, insurance premiums, and credit card repayments was raised to ₹1 lakh per transaction.

Cloud Facility for the Financial Sector

The establishment of a cloud facility in India was announced to enhance data security, integrity, privacy, and business continuity for the financial sector. This is planned for a phased rollout.

Key Takeaways from the RBI’s Monetary Policy Announcement

The recent Monetary Policy Committee (MPC) meeting highlighted the resilience and adaptability of the Indian economy amidst a backdrop of global uncertainties. Here are the key takeaways from Governor Shaktikanta Das’ address:

A Period of ‘Great Volatility’

Das recognised the tough times of the last three years, highlighting the unusual economic instability worldwide. Despite these challenges, India’s economy is still doing well, and it’s expected to grow by 7% in the current fiscal year.

Inflation Management

While progress has been made in taming inflation, especially evident in the decline of core inflation, Governor Das cautioned against complacency. The future path of inflation is shrouded in uncertainty, particularly with potential food price fluctuations. The MPC will remain vigilant and take necessary actions to achieve the 4% inflation target.

Robust Financial Sector

Despite recognizing specific sector- and institution-based vulnerabilities, Das emphasized the overall resilience of the Indian financial sector. Proactive monitoring and timely interventions ensure proactive addressing of potential risks.

Modest Current Account Deficit

The anticipated modest current account deficit, coupled with robust foreign exchange reserves of US$ 604 billion, provides a strong buffer against external shocks.

Rupee Stability Reflects Economic Fundamentals

The remarkable stability of the Indian rupee is a testament to the improving macroeconomic fundamentals and inherent resilience of the Indian economy, even in the face of global turmoil.

Wrapping it Up

This policy decision signals the RBI’s cautious approach, prioritizing price stability while monitoring the ongoing effects of previous rate changes on the economy. The focus on managing liquidity and preventing price shocks suggests continued vigilance and potential future interventions if needed.

The RBI policy statement indicates that the central bank is committed to controlling inflation while supporting economic growth. However, the RBI faces a difficult balancing act as it tries to achieve both of these objectives simultaneously. The RBI’s success will depend on how well it can manage the risks posed by the global and domestic economic environment.

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- A Consumer Education Initiative series by Kotak Life