RBI hikes repo rate by 25 basis points, pegs FY24 GDP growth at 6.4%: Key highlights

RBI Governor Shaktikanta Das said that the world is looking to India to energise global partnership in several critical areas.

The RBI MPC met from February 6-8 for the last monetary policy review of FY23 amid widespread expectations that the central bank will opt for a 25 basis points hike before hitting the pause button. Retail inflation has been cooling now for two months as it printed below the RBI's upper end of tolerance band for November and December. It is expected to moderate further in January.

The Union Budget for 2023-24 laid out the fiscal roadmap for the economy and provided comfort on the deficit front. Global commodity prices have tapered but risks remain as a strong rebound from China could push up energy prices.

RBI Governor Shaktikanta Das said that the world is looking to India to energise global partnership in several critical areas.

Here are the key takeaways from RBI Governor Shaktikanta Das' speech:

Repo hike

The RBI MPC hiked repo rate by 25 basis points taking the key interest rate to 6.5%. Consequently, the SDF has gone up to 6.25% and MSF rose to 6.75%. The MPC also decided to continue with the withdrawal of accommodation stance.

Economic Growth

The RBI projected India's FY24 economic growth rate at 6.4 per cent, a shade lower than what the Economic Survey projected at 6.5 per cent. High frequency indicators point towards strengthening of economic activity, the governor said. In sectors like cement, steel, minig and chemical, there are signs that additional capacity is being created. Expected higher Rabi output and sustained demand in contact based services ector along with government's capex push will bolster investment activity.

Inflation

The RBI projected inflation for FY23 6.5 per cent. For the next fiscal, 2023-24, the RBi sees retail inflation softening to 5.3 per cent. The stickiness of core inflation is a concern. Food inflation outlook will benefit from a bumper Rabi harvest, the governor outlined.

Softening in CAD

The RBI governor expressed said that the Current Account Deficit (CAD) situation has improved in the third quarter after rising in te first half of the current fiscal. He said that the CAD will moderate in H2, remain eminently manageable.

UPI expansion

The RBI also took a major step in expanding the UPI's reach by allowing all inbound travellers to use the platform for making merchant payments. To begin with, the facility will be provided to travellers from G20 countries.

G-sec

In a major step, the RBI has proposed to permit lending, borrowing of government bonds. The market hours for government bonds market has also been restored to pre-pandemic time of 9am-5pm.

Liquidity

RBI governor said that the system liquidity remains in surplus and any augmentation of liquidity on account of higher capex and forex inflows will be moderated by scheduled redemption of LTRO and TLTRO.

Coin vending machine

"The Reserve Bank of India will launch a pilot project on QR-based coin vending machine in 12 cities. These vending machines will dispense coins against debit to customers account using UPI instead of physical tendering of bank notes," the Governor said in his speech.

He also noted that this will enhance the ease of access to coins. "Based on the learnings from the pilot will be issued to banks to promote distribution of coins using these machines."

TReDS

The Reserve Bank of India (RBI) is planning to expand the scope and acceptability of Trade Receivables Discounting System (TReDS).

"It is now proposed to expand scope of TReDS by providing insurance facility for invoice financing, permitting all entities and institutions undertaking factoring business to participate as financiers in TReDS and permitting rediscounting of invoices," Das said.