RBI Monetary Policy 2024 Highlights: Can't give forward guidance on policy stance, says Governor Shaktikanta Das

The RBI Monetary Policy was on the expected lines – no change in rates and status quo on the stance of 'withdrawal of accommodation'.

A section of the market had recently started believing that the Monetary Policy Committee (MPC) might want to bring in a change in policy stance (to something like neutral) in this policy, so as to comfort the markets and bring down the short term rates, but that was clearly not in the MPC agenda.

Overall, the MPC draws comfort from the inflation trajectory of the past few quarters, especially the core inflation, which has moderated quite well (fallen by 310 bps from the high of April 2022) and is now below the 4 percent target of the RBI. The softening in core inflation (CPI inflation excluding food and fuel) is seen as broad-based, across both goods and services, which suggests that the monetary policy is having the desired impact on the economy. Read more

"The RBI delivered another do-nothing policy. There was some disappointment for the market as a section a market including us was expecting at least a stance change from ‘withdrawal of accommodation’ to ‘neutral'," said Pankaj Pathak, Fund Manager- Fixed Income, Quantum AMC. "There was an expectation that the RBI will announce some liquidity infusion measures to deal with the recent tightness in the banking system. However, the RBI seems comfortable with the overall liquidity condition and doesn’t see any need to infuse durable liquidity at this stage."

An interesting observation in this MPC meeting is that while 5 MPC members voted for staying the course, 1 MPC member, Professor Jayanth R. Varma, actually voted to reduce the policy repo rate by 25 bps. Read more

Reserve Bank of India (RBI) Deputy Governor Swaminathan J said the partnerships with Paytm Payments Bank will be a prerogative of banks. “It is a business decision for other banks (if they want to partner with Paytm Payments Bank),” Swaminatah said during the post-policy press conference. Read more

"Going forward, we feel that RBI would remain cautious given the risk posed by high food inflation. Healthy economic growth gives room to the central bank to maintain status quo for some more time. However, in the second half of the year, as domestic inflationary concerns recede and the US Federal Reserve starts cutting rates, we can expect a shallow rate cut by RBI," said Rajani Sinha, Chief Economist, CareEdge.

"While fiscal prudence has smoothened the path for monetary policy, the RBI is wary of cutting rates or changing stance too soon given inflation is not fully tamed yet. We believe given the tensions around the Red Sea — and its attendant impact — and given the trajectory of food prices an interest rate cut is unlikely in the April monetary policy review and would most probably come in June, if not later," said Dharmakirti Joshi, Chief Economist, CRISIL.

Key takeaways: RBI MPC maintains repo rate at 6.5%, forecasts FY25 GDP growth at 7%. Inflation moderated, liquidity remains surplus. Rupee stable, forex reserves $622.5 billion. Details here

The Reserve Bank of India's action against Paytm Payments Bank, the banking entity of Paytm, followed persistent non-compliance, deputy governor Swaminathan J has said.

“This is supervisory action for persistence non-compliance. Such action is invariably preceded by months and sometimes years of bilateral engagement where we point out the deficiencies but also give time to take corrective action. As a regulator, it is incumbent upon us to protect the consumer,” Swaminathan said. Read more

Press briefing concludes; RBI to issue FAQs on Paytm bank action next week

The press briefing of the RBI, following the Monetary Policy Committee (MPC) meeting, has concluded. A bulk of the questions were centred around the central bank's restrictionary order issued against the Paytm Payments Bank. The RBI officials, while noting that the action was based on non-compliance, said a list of FAQs on its action against Paytm's banking arm would be issued next week. Read more

"Just to clarify, the action is against Paytm Payments Bank, not against the Paytm app. The app is not impacted by our action," RBI Deputy Governor Swaminathan J said.

However, the stock of Paytm's parent One97 Communications has been hammered at the markets ever since the central bank issued the order directing the banking arm to stop accepting fresh deposits from March onwards.

India's general government debt has come down from 88 percent to 81 percent or so, Shaktikanta Das said, adding that it should come down to 80 percent or so by 2028.

"I have raised the issue of elevated public debt in a global context, not in the Indian context. As of now, debt-to-GDP ratio is advanced economies is higher than that of emerging market economies. The fiscal deficit of some advanced economies is also high. This issue can become a future source of stress for the global financial system," the RBI Governor said.

RBI Governor Shaktikanta Das asserted that the the Indian financial sector is "very strong", be it banks or NBFCs. "There is no doubt about that. The sector's growth is sound. But as a supervisor, we keep an eye on regulated entities and engage with them directly and ask them to take corrective action," he said.

The RBI is the custodian of financial stability, and stand strongly, he underlined.

"The regulations are in place. They are robust. It is not a case of regulatory deficiency. It is an issue of compliance with various parameters. I don't want to specify the details," Governor Shaktikanta Das said, while being asked by reporters during the press conference about the RBI action against Paytm's banking arm.

"I cannot give any forward guidance on what are the pre-conditions for the stance of policy to be changed to neutral. There are a lot of uncertainties. In such an environment, we can't give any forward guidance," Shaktikanta Das said, during the RBI press conference.

"Over the years, the OTP has become the popular authenticating method. But various other technologies have also become available. We just want players in the field to be aware of them. The RBI is agnostic to what method is used as long as it is a sound method," Governor Shaktikanta Das said, during the post-MPC meeting press conference of the central bank.

It is a business decision for other banks (if they want to partner with Paytm Payments Bank), RBI Deputy Governor Swaminathan J said.

"From experience we know that customers don't read the entire terms and conditions while taking a loan. Which is why we have mandated a Key Fact Statement giving an annualised interest rate that includes all charges. All information is already given by banks, but to make it in customers' interest, we have asked for a Key Fact Statement for retail and MSME customers," RBI Governor Shaktikanta Das said.

"What we have attempted to do today is to clearly state that the stance of policy should not be read as excessive liquidity is prevailing," RBI Governor Shaktikanta Das said.

"The instruments we utilise to manage liquidity will depend on the situation," he added.

"Programability of CBDC doesn't militate against its fungibility," RBI Deputy Governor T Rabi Sankar said.

"Programability of CBDC could be useful in the future, when CBDC is fully implemented, if the government wants to give some cash support to certain individuals for a specific purpose," Governor Shaktikanta Das added.

"Over the last few days, we have received a lot of queries. We have noted them down. Based on that, we will be issuing an FAQ sometime next week," RBI Governor Shaktikanta Das said.

"All our actions are in the best interest of systemic stability and protection of depositors' interests. These aspects cannot be compromised," he added.

"Our focus is always on engaging with regulated entities bilaterally and we nudge them to take corrective action. We give them sufficient time to take corrective action...Without making any specific references to Paytm, I want to make some general comments about all our regulated entities. One, over the last few years, we have significantly deepened our supervisory approach and methods," RBI Governor Shaktikanta Das said.

"Let me put the record straight on the Paytm issue. There is no worry about the entire system. It is an issue with a specific institution," RBI Governor Shaktikanta Das said.

"It is speculative to say the government wants interest rates to come down. Has it said so anywhere?" RBI Governor Shaktikanta Das said.

"We give sufficient time to every regulated entity to comply with regulatory requirements. Sometimes it is more than sufficient time. We are a responsible regulator. If everything is complied with, why should we act?" RBI Governor Shaktikanta Das said.

"It will not be proper for us to discuss the details of Paytm Payments Bank. We are seized of the issue, RBI Deputy Governor Swaminathan J said.

"We don't want to discuss details of action on Paytm Payments Bank. This is supervisory action for persistence non-compliance. Such action is invariably preceded by months and sometimes years of bilateral engagement where we point out the deficiencies but also give time to take corrective action. As a regulator, it is incumbent upon us to protect the consumer," RBI Deputy Governor Swaminathan J said.

Our multi-pronged and proactive policies have worked well to maintain and strengthen macroeconomic and financial stability. Systemic, sectoral, and institutional signs of risk are proactively monitored and acted upon wherever necessary, the RBI Governor told reporters.

"Domestic economic activity continues to be strong. CPI inflation is moderating with intermittent interruptions. We have to remain vigilant. Our focus on achieving 4 percent inflation on a durable basis has to continue," RBI Governor said.

RBI Governor Shaktikanta Das is briefing the press on the decisions taken by the Monetary Policy Committee. The press interaction comes shortly after he made the major announcemens at 10 am. Stay tuned here for the latest updates.

"The overall tone of the policy remained cautious with uncertainty on food inflation outlook. The Governor continued to highlight the risk successive food price shocks, resulting in un-anchoring of inflation expectations. Comfort was drawn from broad-based moderation in core inflation and inflation expectation remaining anchored," said Gaura Sen Gupta, India Economist, IDFC First Bank.

“To facilitate the use of such mechanisms for digital security, it is proposed to adopt a principle-based framework for authentication of digital payment transactions,” RBI Governor Shaktikanta Das said at the Monetary Policy Committee announcement. Read more

As expected, the monetary policy committee (MPC), led by the RBI, retained the key lending rate, the repo rate, at 6.5 percent, making it the sixth consecutive policy review of no rate action. More importantly, the stance on withdrawal from accommodation too was retained, indicating that the MPC is not yet ready to lower the guard against retail inflation, at least until the inflation numbers comfortably align with the medium-term target of 4 percent.

A shift in stance to ‘neutral’ would have indicated the thinking within the central bank towards a rate cut in the near term. That hasn’t happened yet. A lot will depend on inflation numbers in the months ahead. The central bank wants inflation to come down to the 4 percent level on a sustainable basis. Read more

"Unlike market expectations, RBI's tone was not dovish. Governor Das was clear that tail risks have the possibility of undoing the work on disinflation. With RBI's inflation projection of 4.5 percent for 2024-25, any expectations of cuts coming in the current year become unlikely. We think the progress in food prices will be the key monitorable for RBI's tone in the upcoming policy. Like other central banks, higher growth for the current and next year gives RBI more headroom to be on a wait-and-watch mode," said Sujan Hajra, Chief Economist, Anand Rathi Shares and Stock Brokers.

"The MPC decision to keep the policy rate unchanged was expected. The stance is also kept at withdrawal of accommodation, that possibly is a surprise. This possibly is explained by the fiscal consolidation with Government projecting a lower deficit than target in 2023-24 and an aggressive 5.1 percent deficit target for 2024-25," said Ranen Banerjee, Partner and Leader Economic Advisory, PwC India.

"The lower government borrowings and higher international money allocations to India bonds owing to inclusion of India in the JPMorgan Emerging Markets bond index will keep a downward bias on the yields. The growth momentum is also holding up and inflationary risks are still on the horizon. The MPC therefore has decided to conserve its rate and stance gunpowder at this stage," the expert added.

"The governor highlighted the significance of the ‘last mile of disinflation’ and also indicated that the monetary transmission is still incomplete. Given such a background, the central bank will continue to prefer a tighter liquidity position.Given the tone of the MPC statement and the expectation of growth buoyancy, we believe that the likelihood of any rate cut by RBI has significantly reduced over the next six months," said Suman Chowdhury, Chief Economist, Acuité Ratings & Research.

"These are Goldilocks times for the RBI – with 2024-25 growth expected at 7.0 percent and inflation at 4.5 percent – and so it is not surprising that the MPC has maintained status quo on policy rates and stance of ‘withdrawal of accommodation’.That said, this is the first time one of the MPC members has dissented in favour of a cut, suggesting a growing divide between external and internal RBI members on the policy trajectory," said Aurodeep Nandi, India Economist, Nomura.

"Overall, there were no major announcements, hinting at an imminent easing. The RBI has been managing daily liquidity with overnight infusion, as and when required. We don't see easy monetary policy anytime soon, especially with such strong growth," said Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services.

"It was no surprise that RBI MPC decided to keep the status quo on the interest rates for the sixth consecutive time. However, RBI continued to sound hawkish as against the market expectations and has not provided any indication of the timing of the change in monetary stance from ‘withdrawal of accommodation," said Suman Chowdhury, Chief Economist, Acuité Ratings & Research.

Your home loan equated monthly installments (EMI) and interest burden will remain unchanged for now, with the RBI Monetary Policy Committee (MPC) deciding to keep the repo rate steady at 6.5 percent for the sixth consecutive time. Leading banks such as the State Bank of India (SBI), Bank of Baroda, HDFC Bank and ICICI Bank currently offer home loan rates starting at 8.35-8.75 percent. Read more

The RBI has effectively addressed emerging concerns around continued high systemic liquidity deficit. The deficit since December is due to a confluence of seasonal and ad-hoc macro factors, and should ease on a sustainable basis over the next 2-3 months. With RBI’s continued intervention in managing call money rates at close to the repo rate, I don’t expect deficit to rise up to the highs of Rs 3 lakh crore plus on a durable basis once again during the rest of 2024," said Debopam Chaudhuri, Chief Economist at Piramal Group:

"A Union Budget focused on fiscal consolidation followed by RBI’s assurance to maintain comfortable liquidity levels should provide a breather to our debt markets, till the actual shift in monetary policy occurs during Q1 2024-25," Chaudhuri added.

Reserve Bank of India (RBI) Governor Shaktikanta Das on February 8 said liquidity in the banking system was in surplus after adjusting with the government cash balances. “Systemic liquidity turned into deficit in September 2023 after a gap of four-and-a-half years. But after adjusting for government cash balances, potential liquidity in the banking system is still in surplus,” Das said during monetary policy announcement. Read more

Keeping its focus on customer centricity, the Reserve Bank of India announced that banks will have to offer loans at a rate that includes the entire cost of the loan. That is, not just the interest rate itself but also other costs such as processing fees, documentation charges etc. This will apply to all retail loans and MSME (micro, small and medium enterprises) loans. Read more

The 10-year benchmark bond yield rises to 7.0861% after the monetary policy announcement.

"The impact on government bond yields would now depend upon investor perceptions of the effectiveness of the RBI's policies, expectations regarding future interest rate movements, government borrowing programmes and broader market dynamics. Overall we expect the 10-year government bond yield to trade in the range between 7.06% to 7.15% in near term," said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.

- Repo Rate Unchanged At 6.50%, MSF And SDF Rates Remains Unchanged
- FY25 CPI Inflation Seen At 4.5%, Inflation Will Further Soften In 2024
- FY25 Real GDP Growth Projected At 7%
- Policy Stance In Light Of Incomplete Transmission Of Rates
- RBI To Deploy Appropriate Mix of Tools To Modulate Liquidity
- Central Banks Remain Cautious Against Premature Easing
- Financial Parameters Of NBFCs Improving In Tandem With Banks
- Customer Loans' Other Fees Must Be Included In Interest Rate
- All Retail, MSME Loans Now Need Key Fact Statement
- Resident Entities Can Now Hedge Gold In IFSC OTC Market.

"On rates cut timing, we understand that shifting debates on global narratives requires the RBI to be flexible as well. We have long maintained that the RBI's policy has been somewhat pegged to the US Federal Reserve, specifically in the last two years, even as it formally targeted inflation. The swift turn of tone and action pivots of the RBI in the last two years have been influenced purely by global narrative. We do not see RBI preceding the Fed in rate cuts," said Madhavi Arora, Lead Economist, Emkay Global Financial Services.

MPC external member Jayanth Varma voted to reduce the policy repo rate by 25 basis points to 6.25 percent , against the majority decision. Varma was in the minority when it came to the stance too, as he wanted to change the stance of monetary policy to ’neutral’ from ‘withdrawal of accommodation’.

Expectedly, there was no change in stance of ‘withdrawal of accommodation’. We understand the RBI would be biased to keep overnight rates more aligned towards the repo rate than Marginal Standing Facility/Standing Deposit Facility rate ahead. A part of this would be naturally achieved ahead. Our estimates suggest system liquidity deficit is likely to ease to 0.5-0.8 percent of Net Demand and Time Liabilities in the coming months versus 1.1-1.2 percent of Net Demand and Time Liabilities in January, helped by the government's cash drawdown, apart from other factors," said Madhavi Arora, Lead Economist, Emkay Global Financial Services.

"We reaffirm our commitment to bring down inflation to the target of 4 percent in a timely and sustainable manner. Price and financial stability are the foundations for strong and inclusive growth," the RBI Governor said.

"We propose to add programmability for specific targeted purposes and offline functionality to the retail CBDC pilot project," Governor Shaktikanta Das.

The SMS-based OTP mechanism has become very popular. But to enhance security of digital payments, it is proposed to put in place a principle based framework for authentication of such transactions, Governor Shaktikanta Das said.

Onboarding of AePS service providers to be streamlined; additional fraud prevention measures to be introduced

"We propose to streamline the process of on-boarding of Aadhaar Enabled Payment System (AePS) service providers and introduce additional fraud risk management measures," RBI Governor Shaktikanta Das said.

To enhance transparency, the requirement of a Key Fact Statement is being extended to cover all retail and MSME loans. Banks will get some time to comply with this action, the Reserve Bank of India Governor said.

It has been decided to also allow resident entities to hedge price of gold in OTC segment in IFSC, the Reserve Bank of India Governor said.

In view of developments in markets and technology, we will review the regulatory framework for electronic trading platforms, the Reserve Bank of India Governor said.

India’s foreign exchange reserves stood at $622.5 billion as on February 2, 2024, the Reserve Bank of India Governor, Shaktikanta Das, said while announcing the monetary policy panel meeting's outcome.

Current account deficits in FY24 and FY25 are expected to be eminently manageable, RBI Governor Shaktikanta Das said.

"Let me reiterate that the exchange rate of the Indian rupee is market determined. Its recent stability despite a stronger US dollar and elevated US Treasury yields reflects the strength and stability of the Indian economy," the RBI Governor said.

"Let me reiterate that our policy stance of withdrawal of accommodation should be seen in the context of incomplete rate transmission and inflation remaining above the 4 percent target," the RBI Governor pointed out.

10-year benchmark bond yield rises during monetary policy announcements by over 1 bps to 7.0738 percent.

Systemic liquidity turned into deficit in September 2023 after a gap of four-and-a-half years. But after adjusting for government cash balances, potential liquidity in the banking system is still in surplus, the RBI Governor said.

CPI inflation target is yet to be reached. Amid lingering uncertainties, monetary policy has to remain vigilant and the last mile of disinflation navigated, the RBI Governor said.

- January-March 2024 CPI inflation forecast lowered to 5.0 percent from 5.2 percent.
-April-June 2024 CPI inflation forecast lowered to 5.0 percent from 5.2 percent.
-July-September 2024 CPI inflation forecast retained at 4.0 percent.
-October-December 2024 CPI inflation forecast lowered to 4.6 percent from 4.7 percent.
-January-March 2025 CPI inflation forecast pegged at 4.7 percent.

FY25 CPI inflation forecast retained at 4.5 percent, RBI Governor Shaktikanta Das said.

The FY25 GDP growth is seen at 7 percent, the RBI Governor said. He shared the following quarter-wise breakdown:

-April-June 2024 GDP growth forecast raised to 7.2 percent from 6.7 percent.
-July-September 2024 GDP growth forecast raised to 6.8 percent from 6.5 percent.
-October-December 2024 GDP growth forecast raised to 7.0 percent from 6.4 percent.
-January-March 2025 GDP growth forecast pegged at 6.9 percent.

Domestic agriculture activity is holding up well despite lower inflation and lower reservoir levels. Services sector activity is expected to remain resilient, the RBI Governor said.

The Indian government is adhering to the path of fiscal consolidation, the RBI Governor said. His comments come days after the finance minister set a target of 5.1 percent fiscal deficit for FY2024-25.

Amidst current headwinds, elevated level of public debt is raising issues of macroeconomic stability in countries, including advanced ones, the RBI Governor said.

Global financial markets are volatile as market participants adjust their expectations on timing of rate cuts by major central banks.

MPC will carefully monitor generalisation of food price pressures, says Guv Das

MPC will carefully monitor generalisation of food price pressures which can fritter away the gains in easing of core inflation. Monetary policy must continue to be actively disinflationary to align inflation to 4 percent target on a durable basis. MPC will remain resolute in this commitment, Governor Shaktikanta Das said.

: A no surprise policy, again

"As expected, the monetary policy committee (MPC) led by the Reserve Bank of India (RBI) retained the key lending rate, repo, at 6.5% marking it the sixth consecutive policy review of no rate action.

More importantly, the stance too was retained as withdrawal from accommodation, indicating that the MPC is not yet ready to lower the guard against the retail inflation at least until the inflation numbers align with the medium-term target of 4 percent."

Dinesh Unnikrishnan-Editor, Banking & Finance.

: MPC also voted by 5 votes to 1 to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth, the Reserve Bank Governor said.

MPC decided by 5 votes to 1 to leave the repo rate unchanged at 6.5 percent, Governor Shaktikanta Das said.

LIVE: Global economy presenting mixed picture, says Guv Das

Global economy presenting a mixed picture, odds of a soft landing has increased globally. Emergence of new flash points impart uncertainty to global macro landscape, the RBI Governor said.

First MPC of 2024, RBI has focused on customer centricity and financial inclusion, he added.

RBI Governor Shaktikanta Das has begun his live address, following the conclusion of the MPC meeting. Stay tuned here for the latest updates.

RBI Governor Shaktikanta Das is scheduled to address the press in a couple of minutes from now, where he would unveil the key policy decisions on the repo rate front, inflation outlook and other monetary indicators.

Ahead of the MPC outcome, the overall market remained on the sidelines. Apart from the MPC, the US Retail Sales data and China’s CPI data may offer some cues to Indian markets. Investors will also continue to take cues from the ongoing earnings season, said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

The US Federal Reserve in its FOMC meeting on January 31 kept the rates steady, and quashed hopes of a rate cut in March. Fed chair Jerome Powell said in an interview that the central bank will proceed carefully with interest rate cuts this year. They are likely to move at a considerably slower pace than the market expects.

Another key thing to watch out for in this policy would be the MPC’s voting pattern. After the last monetary policy, some of the MPC members openly advocated for a rate cut. "We might see a split voting on rates this time with one or two MPC members voting for a rate cut," said Pankaj Pathak, fund manager for fixed income at Quantum AMC.

According to a Moneycontrol poll, the RBI is likely to leave the key interest rates unchanged. An overwhelming majority of the economists polled also said that the central bank would maintain the policy stance of withdrawal from accommodation in the meeting, thus largely continuing the policy approach taken in recent months.

Even as the worst of inflation is behind, and core retail prices are on a downward trend, Yes Bank economists expect the RBI to maintain a hawk-eye on the inflation dynamics, given that food inflation has been recurrent in the recent past due to uncertainties in climate and rising geopolitical tensions. Also, the guidance of the central bank towards achieving the stated target of 4 percent would continue.

Since banking stocks’ underperformance has been keeping markets range-bound, any rate-cut indication by the RBI can move shares of private lenders such as ICICI Bank or Axis Bank, which will bolster the overall sentiment, said Ajit Mishra, Senior Vice-President of Technical Research at Religare Broking.

Banking stocks including heavyweights SBI, HDFC Bank, Bank of Baroda and IndusInd Bank gained up to 2 percent on opening deals ahead of the Reserve Bank of India's Monetary Policy Committee (RBI MPC) announcement. The RBI is expected to keep repo rates steady at 6.5 percent for the sixth consecutive time, according to analyst consensus.

Ahead of the announcements that are to be made by the Reserve Bank's Monetary Policy Committee, realty stocks edged lower during the opening session at the stock markets. Sobha Ltd, Macrotech Developers and others dragged Nifty Realty index down by nearly 1 percent.

Realty stocks traded with cuts ahead of the Reserve Bank of India's Monetary Policy Committee announcements. Following the three-day meeting of the MPC, the central bank is scheduled to make announcements related to the repo rate, policy outlook, inflation and growth projections, among others.

Indian rupee opens 4 paise up to 82.93 against the US dollar. The 10-year benchmark bond 7.18 percent 2033 opened almost 1 bps down to 7.0672 percent.

The banking system's liquidity deficit decreased to approximately ₹1.40 lakh crore by February 4, down from a peak of ₹3.46 lakh crore on January 24, attributed to increased government spending. This decline also led to lower overnight money market rates, easing from around 6.50-6.75% last month to 6.33%. The RBI maintains tight liquidity to support inflation alignment with targets while aiding growth. V Rama Chandra Reddy from Karur Vysya Bank linked the deficit reduction to government payments. However, the deficit could rise to ₹2-2.5 lakh crore due to GST payments in mid-February. RBI Governor Shaktikanta Das acknowledged the liquidity's alignment with policy stance in December 2023, noting anticipated ease from government spending and RBI's nimble liquidity management approach.

Indian equity markets poised for a flat-to-positive opening on February 8, with the GIFT Nifty mildly up in morning trading. GIFT Nifty on NSE IFSC rose by 0.14%, or 30 points. Market sentiment cautious ahead of RBI MPC meeting, anticipated to maintain unchanged key policy rate for the sixth consecutive time. Read on

In the last policy review, the RBI retained the retail inflation target for the fiscal year unchanged at 5.4 percent, despite uneven monsoon showers and as outlook on food prices remain on edge amid a spike in global crude oil prices. The December inflation number was 5.7 percent lower than market expectations. More importantly, the core inflation-non food, non-oil part of the inflation—has been easing. Will the RBI lower the inflation target further? Last month, the RBI Governor also said inflation will ease further from the current levels. --Dinesh Unnikrishnan, Editor--Banking & Finance.

According to the Reserve Bank of India, approximately Rs 92,100 crore have been withdrawn in four auctions since Friday. This coincides with the overnight borrowing rate of banks falling below the benchmark repo rate. This trend suggests that the RBI is unlikely to ease its stringent monetary policy stance, especially with inflation persisting significantly above its 4% target.

The RBI hasn't consented to adding electric vehicles (EVs) to the priority sector lending (PSL) list, said Vivek Joshi, finance ministry official, in an interview with Moneycontrol. Joshi aims to engage with the RBI on this matter. Read more

IDFC Bank economist Gaura Sen told Moneycontrol, "The current account deficit in FY24, is expected to reduce to 1.2 percent of GDP versus a 2 percent deficit in FY23, led by a reduction in the trade deficit as commodity prices eased and supply chains normalised.

Services surplus and transfers have risen, reflecting the strong growth of India’s services exports and strong growth conditions in the US. The current account reflects the gap between savings and investments in the economy. The reduction in Current Account Deficit in FY24 indicates that overall gross savings in the economy as percent of GDP has likely risen in FY24." Read more

Even when the RBI keeps the interest rates steady, it can launch an indirect rate action in the banking system through liquidity measures. Money market experts expect the central bank to maintain a tight liquidity stance this time. Also, they believe the RBI will continue extending the liquidity support to the banks whenever needed. In the last few months, liquidity in the banking system remained tight and the RBI had provided adequate support whenever needed with the various variable rate repo auctions. Usually that support was provided whenever there were major outflows from the banking system and overnight rates shot above the Marginal Standing Facility (MSF) rate. Will RBI announce more support to the liquidity today? Let's wait and watch.
- Dinesh Unnikrishnan, Editor (Banking & Finance)

The RBI is anticipated to maintain the repo rate at 6.5% during the February MPC meeting, according to analysts. While markets have priced in this expectation, any hints of future rate cuts from Governor Shaktikanta Das could spark a market rally. An overwhelming majority of economists also anticipate the RBI to maintain its withdrawal stance from accommodation. Elevated headline inflation prompts caution despite a drop in core inflation. The US Federal Reserve signals a cautious approach to rate cuts, eyeing a 2% inflation target. Read on

RBI policy announcements aren't only about jargon and cryptic comments from central bankers. The rate actions announced will have a certain impact on every average Indian who might be connected to the formal banking system either as a borrower or depositor. Banks typically follow RBI policy clues and pass on the rate actions to the end customer by tweaking loan or deposit rates. But today any such action is unlikely. The MPC is largely expected to follow the status quo in key rates and wait till April-June before taking any rate action based on the inflation trajectory.
- Dinesh Unnikrishnan, Editor (Banking & Finance)

With robust growth and inflation yet to align with targets, RBI has room to wait, assessing factors like monsoon, Red Sea tensions, and US Fed actions before rate cuts. However, rapid market shifts could prompt early monetary easing. RBI should avoid being caught in market volatility, potentially pivoting to a neutral stance in Q2 FY25 and initiating a shallow rate-cut cycle from October 2024, aiming for a cumulative 75 bps reduction in FY25.