RBI MPC Highlights | Pause no signal of neutral stance, inflation top priority: Guv Das

He said that the RBI has tried to adopt a balanced approach, taking both growth and inflation into consideration. "The law says the primary target is 4 percent inflation, which I have emphasised. But we also have to keep in mind the objective of growth," he said.

Given that India is expected to be one of the fastest-growing major economies, the RBI does not currently see a need for immediate easing of the monetary policy. The RBI has upgraded its economic growth projection for the current fiscal to 7 percent.

Here are key highlights from Reserve Bank's press briefing:

'Inflation top priority now'

Das noted that the RBI has tried to adopt a balanced approach, taking both growth and inflation into consideration. "The law says the primary target is 4 percent inflation, which I have emphasised. But we also have to keep in mind the objective of growth," he said.

"In May 2022, when we prioritised inflation over growth, that same approach and stance continues. Our decisions are dependent on inflation and growth. Inflation is our top priority now. We still have some way to reach 4 percent."

The RBI Governor further noted that reaching 4 percent inflation should "not be a one-off event". "It should be at 4 percent on a durable basis. And the MPC should have confidence that 4 percent has been reached durably," he said.

Not signalling move to neutral stance: Das

Das, while responding to a query, said the RBI does not communicate anything to markets inadvertently. "If somebody is assuming that five meetings in a row of no rate action means a neutral stance, it would not be correct at all. We are not giving any kind of a signal that we are moving towards neutral stance," he clarified.

Refrain from forward guidance due to uncertainty: Das

"We refrain from giving any forward guidance considering the kind of uncertainty that lies ahead of us. I have said that the future is fickle and new shocks can come from anywhere. With inflation still some distance from 4 percent, I cannot give any guidance," the RBI Governor said.

OMOs not off the table: Das

"We have not said that OMO (open market operation) sales are off the table. All we have said is that due to certain factors beyond our control, the need for OMO sales has not come up so far. The tool remains on the table and will be used, if and when required, depending on evolving liquidity conditions," Das stated during the press interaction.

7% GDP growth forecast for FY24 'conservative'

"The first half GDP growth has beaten all estimates, including ours. The October-November data is also very robust. So, the 7-percent GDP growth forecast for FY24 is like a conservative estimate," RBI Deputy Governor Michael Patra said.

Notably, India remains the fastest growing large economy, and surpassed expectations by clocking a 7.6 percent GDP growth in the July-September quarter.

Move on consumer credit were 'pre-emptive measures'

The RBI's move to increase the credit weight on consumer loans, via the measures announced on November 16, were "pre-emptive measures", said Swaminathan Janakiraman, the central bank's Deputy Governor.

"We had made effort in the previous 3-4 months to sensitise players in the industry to put additional controls. As there was not much of a response, we watched the data and announced the prudential measures," he said.

"We are not trying to curtail loan growth. But we expect the lenders to conduct their business such that avoidable risk build-up is mitigated," Swaminathan added.

No system-level risk due to loans of less than Rs 50,000

"Personal loans of less than Rs 50,000 makes up less than half a percent of total outstanding credit. So it does not pose a system-level risk," Swaminathan said.

"While there might be some recalibration of business models and moderation of credit growth in some segments, that would be the impact of the prudential measures playing out," the RBI Deputy Governor added.

Using 'smell test' to detect distress

"As part of our supervision and proactive monitoring of the financial sector, we try and stay up to date. We have deepened our supervisory methods. We try to use the ‘smell test’ also. So, if we smell any stress building anywhere at system or entity level, we address it," Das said.

At this point of time, the balance sheet of the Indian financial sector remains robust, he added.

'Provisions on connected lending scattered'

RBI Deputy Governor M Rajeshwar Rao, while responding to a query raised by CNBC TV-18, said presently, the provisions on connected lending are "scattered". "What we want is uniformity," he added.

Administered rate for savings account will be retrograde step: Das

Das, while agreeing that savings account interest rates have not increased by much, stressed that interest rates are de-regulated and the introduction of any kind of administered rate "would be a retrograde step". It is a commercial decision of banks, he added.

Concerns over India’s inclusion in global bond indices 'overblown': Sankar

"Concerns that inflows from India’s inclusion in global bond indices could cause volatility are overblown. We have the instruments needed to take care of that," RBI Deputy Governor T Rabi Sankar said.

Das added that it remains to be seen what the impact of India’s inclusion in JPMorgan global bond index will be. "Analysts have made various estimates. We have the capacity to deal with those kinds of inflows. If you see our track record, we have dealt with these kinds of flows in the past, be it inflow or outflow."

Here are the key highlights from RBI's announcements:

CPI inflation forecast for FY24 retained at 5.4%

The consumer price index-based inflation forecast for the entire fiscal year 2023-24 has been retained at 5.4 percent, Das said. Here is the quarter-wise projection shared by him:

• October-December 2023 retained at 5.6 percent.


• January-March 2024 retained at 5.2 percent.


• April-June 2024 retained at 5.2 percent.


• July-September 2024 pegged at 4.0 percent.


• October-December 2024 pegged at 4.7 percent.

"There has been broad based easing in core inflation, which shows the effect of monetary policy. But inflation will likely tick up in November and that needs to be monitored for second round effects, if any," Das said.

Notably, the CPI inflation had cooled to a 5-month low of 4.8 percent in October.

"Notwithstanding the progress made on lowering inflation, the 4 percent target is yet to be reached and we have to stay the course," he added.

Also Read: RBI MPC 2023 | Repo rate, LAF, CRR, and all the key terms de-jargoned

While the monetary policy "will look through one-off price shocks", it has to "stay alert to these shocks becoming generalised", the RBI Governor clarified.

GDP growth forecast for FY24 raised to 7%

GDP growth forecast for FY24 has been raised to 7 percent from 6.5 percent, Das announced during the press briefing. Here's the quarter-wise forecast:

• For the October-December 2023 quarter, the growth projection has been raised to 6.5 percent from 6.0 percent.


• For January-March 2024 quarter, it has been raised to 6 percent from 5.7 percent.


• For April-June 2024, the forecast has been raised to 6.7 percent from 6.6 percent.


• In July-September 2024, the GDP growth is seen at 6.5 percent.


• GDP growth forecast in October-December 2024 is seen at 6.4 percent.

The RBI’s balance sheet has moderated as a percentage of GDP, Das said, adding that this is a "significant achievement". He added that "system liquidity turned into deficit in September after a gap of nearly four and a half years".

"The overall tightening of liquidity has meant that the need to conduct open market sale of government bonds has not arisen so far," the RBI Governor further said.

Reversal of liquidity facilities on weekends, holidays

Das announced the reversal of liquidity facilities on weekends and holidays from December 30.

“We propose to allow reversal of liquidity facilities under both Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) even during weekends and holidays with effect from December 30, 2023," he said.

Regulating digital lending

Commenting on the measures taken to curb retail loan growth, Das said, “We do not wait for the house to catch fire and then act".

"We will come out with a unified regulatory framework on connected lending for all regulated entities of the Reserve Bank. This will further strengthen pricing and management of credit by regulated entities," he added.

The RBI Governor also noted that a regulatory framework would be laid down on web aggregation of loan products. This is expected to enhance transparency in digital lending, he said.

UPI limit enhanced for hospital, educational payments

The UPI limit for payments to hospitals and educational institutions now stands revised upwards from Rs 1 lakh to Rs 5 lakh per transaction, Das announced.

Cloud facility soon for financial sector

The RBI is working on establishing a cloud facility for the financial sector in India, Das said, noting that banks and financial institutions are maintaining an ever-increasing volume of data.

"This will enhance data security, integrity, and privacy. It is intended to be rolled out in a calibrated manner over the medium term," he said.

Fintech repository by April

"We propose to set up a FinTech repository by April 2024. We encourage FinTechs to provide relevant information voluntarily to this repository," Das stated.

'Gradual turnaround in rural demand'

There is a gradual turnaround in rural demand, the RBI Governor said, adding that festival-related demand is also spurring households’ discretionary spending in the current quarter.

"Looking ahead, private consumption should gain support from gradual improvement in rural demand, continued buoyancy in services, and strengthening of manufacturing."

'Normalcy still eludes global economy'

"The year 2020-2023 will go down in the history as a period of volatility, due to the black swan events seen in quick succession," Das said.

"As 2023 comes to an end, the long-awaited normality still eludes the global economy. While headline inflation has receded from the highs of last year, it remains above target in a number of countries," he added.

Ahead of the MPC announcement, economists expected the panel to maintain status quo at a time when concerns over high interest rates impacting economic growth have tapered with the second quarter GDP growth coming in at a robust 7.6 percent.

Even though inflation has tapered and concerns over core inflation eased, the volatility in food prices was expected to weigh on the MPC's decision.

A poll of economists conducted by Moneycontrol suggested that MPC was likely to hold the rates steady and maintain status quo on the stance as well.

Notably, the RBI began increasing the benchmark lending rates in May 2022, following the post-pandemic turbulence seen by the global economy and the uncertainty caused due to the Russia-Ukraine war. After raising the interest rates by 250 basis points till February 2023, the central bank struck a pause and kept the benchmark lending rate steady at 6.5 percent.