RBI monetary policy: Key takeaways from Das's address

Since May 2022, the regulator has hiked the repo rate by 250 basis points to counter inflationary pressures, and for the last four MPCs the repo rate has remained unchanged.

The Reserve Bank of India's (RBI’s) monetary policy committee (MPC), as expected, left the key lending repo rate unchanged at 6.5 percent for the fourth consecutive time, as the focus remained on bringing inflation down.

Announcing the decision, Governor Shaktikanta Das said the RBI also maintained its policy stance of "withdrawal of accommodation" to ensure inflation progressively aligned with the MPC's target while remaining supportive of economic growth.

The status quo means interest rates for retail as well as corporate borrowers will remain stable. The central bank started hiking the policy rate in May 2022 in tranches in the wake of the Russia-Ukraine war and took it to 6.5 percent in February this year. Since then, it has kept the rate steady at its bi-monthly monetary policy reviews.

Also Read | RBI MPC meet live updates: Our inflation target is 4% and not 2-6%, says Shaktikanta Das

Here are the takeaways from the policy announced on October 6: 

Inflation

– Inflation likely to ease in September.

– The overall inflation outlook is clouded by uncertainties by a fall in kharif sowing, lower oil reserve levels and volatile global food and energy prices, says the RBI governor said.

–  CPI-based inflation projected at 5.4 percent for FY24.

– MPC will remain watchful of inflation and remains resolute in its commitment to align inflation to the targeted level, Das said.

– For FY24, the retail inflation forecast retained at 5.4 percent. The forecast for Q2FY24 has been raised from 6.2 percent to 6.4 percent.

Also Read: Monitoring certain components of personal loans in the books of banks, NBFCs, says Guv Das

– For Q3FY24, the inflation projection has been slashed to 5.6 percent from 5.7 percent. For Q4FY24, the projection has been retained at 5.2 percent.

– For Q1FY25, the inflation projection has been maintained at 5.2 percent.

GDP

– Taking all factors into consideration, real GDP growth for the current financial year is projected at 6.5 percent.

– Real GDP growth for the first quarter of next financial year 2024-25 is projected at 6.6 percent.

– January-March real GDP growth seen at 5.7 percent, unchanged from earlier projection, says Das.

– Likewise, April-June FY25 real GDP growth seen at 6.6 percent, unchanged from earlier.

– Das said capex in the private sector is gaining ground. Capacity utilisation has been going up on a seasonally adjusted basis.

– Investment activity maintained its momentum with good support from government.

– Services exports grew at a healthy pace driven by software and business services.

Credit growth

– Banks credit growth is broad-based.

– RBI is closely monitoring sharp growth is some personal loan categories.

– Banks and NBFCs are asked to strengthen surveillance.

– Need of the hour is strong risk management, says the RBI chief.

Government securities

–  RBI governor Das said the central bank may consider OMO (open market operation) sales of government securities to manage liquidity consistent with the stance of monetary policy.

– Das said: “We may have to consider OMO-sales to manage liquidity, consistent with the stance of monetary policy. The timing and quantum of such operations will depend on the evolving liquidity conditions."

Remittances and CAD

– On the remittances front, the rise of 5.8 percent YoY in Q1 FY24 was registered.

– The current account deficit (CAD) fell to 1.1 percent of GDP.

– The foreign exchange reserves grew by a net $24.4 billion.

– A turnaround was seen in inflows under external commercial borrowing, with $4.5 billion in April-August.