MPC keeps repo rate unchanged, raises GDP growth forecast: 10 key takeaways

RBI expansion of NDF access to help manage Indian rupee volatility: Analysts

In a surprise move, the RBI's Monetary Policy Committee decided to hit the pause button and kept the key repo rate unchanged at 6.5 per cent. Announcing the decision, RBI Governor Shaktikanta Das underlined the contagion risks associated with the global banking turbulence.

He underlined the challenges of fighting the sticky core inflation and said that inflation globally has moderated but descent to target has been long and arduous.

The decision to keep rates unchanged was unanimous. The Governor also highlighted that the MPC will be ready to act should situation so warrant.

Also read: RBI opts for a pause in rate hike

Here are the ten big takeaways from RBI Governor's address:

1. Repo rate unchanged

The key repo rate was kept unchanged at 6.5 per cent. So far, the RBI has hiked rates by 250 basis points since the start of interest rate hiking cycle in May last year. The decision comes as a surprise as experts were predicting a final 25 basis points hike considering the stubborn behaviour of inflation.

2. Growth forecast raised

The RBI surprised not only with a pause in policy rates, it also raised the GDP growth forecast for the current fiscal to 6.5% from the earlier projection of 6.4%. This comes at a time when almost everyone else is paring the growth estimates due to the global economic headwinds. Recently, both the World Bank and the ADB reduced their economic growth forecasts for India to 6.3% and 6.4% respectively.

3. Inflation projection pared

The RBI lowered its inflation projection for FY24 to 5.2% from the earlier estimate of 5.3%. The Governor said that inflation globally has moderated but descent to target is long and arduous. The Governor said that the expectation of record Rabi harvest bodes well for headline inflation. The RBI's inflation projection takes into account annual average crude oil price (Indian basket) of US$ 85 per barrel and a normal monsoon.

4. Core inflation worries

The Governor underlined the core inflation worries as it remains sticky. He said that the lagged passthrough of input costs could keep core inflation elevated. He said that the disinflation process is likely to be gradual and protracted due to the rigidity in core or underlying inflation pressures.

5. Global Banking turmoil

The Governor said that the Indian banking system remains sound and healthy, with strong capital and liquidity positions, improving asset quality, better provisioning coverage along with improved profitability. He pointed towards the recent banking sector developments in advanced economies and said it merits a reappraisal of the responsibilities of both the regulator and regulated entities.

6. OPEC cut

The Governor flagged heightened uncertainty globally. He said that the sudden announcement of an output cut by OPEC+ a few days ago and the resultant jump in crude oil prices is yet another evidence of this volatility.

7. UPI expansion

UPI's scope has been further expanded by permitting operation of pre-sanctioned credit lines at banks through the UPI. The Governor said that the UPI has transformed retail payments in India and underlined the recent move to link RuPay credit cards with UPI. This was in addition to the existing facility of linkage of UPI with deposit accounts.

8. Improved Credit governance

The following measures were also announced by the Governor to strengthen consumer protection:

(i) a compensation mechanism for delayed updation/rectification of credit information reports;

(ii) a provision for SMS/email alerts to customers whenever their credit information reports are accessed;

(iii) a timeframe for inclusion of data received by CICs from Credit Institutions; and

(iv) disclosures on customer complaints received by CICs.

9. Improvement in CAD

The Governor said that the Current Account Deficit (CAD) is expected to remain moderate in Q4:2022-23 and in the year 2023-24 at a level that is both viable and eminently manageable.

10. Rupee performance

The Governor said that the RBI will remain watchful and focused on maintaining rupee stability. He said that the Indian Rupee has moved in an orderly manner in the calendar year 2022 and continues to be so in 2023 also.