RBI MPC Meeting 2023: Key highlights so far from the MPC review

A Summary of MPC announcements:

GDP

— GDP projection for FY24 stays unchanged at 6.5 percent

— Indian economy exuding enhanced strength and stability.

— GDP growth forecast for July-September 2023 retained at 6.5 percent.

— GDP growth forecast for October-December 2023 retained at 6.0 percent.

— GDP growth forecast for January-March 2024 retained at 5.7 percent.

— GDP growth forecast for April-June 2024 pegged at 6.6 percent.

— The momentum of overall economic activity in India is positive and industrial activity is holding ground, as industrial production growth (IIP), core data and PMI shows, says RBI Governor Das.

— The global economy continues to face daunting challenges of elevated inflation, high levels of debt, tight and volatile financial conditions, continuing geopolitical tensions, fragmentations and extreme weather conditions, says Das.

— These external factors are likely to impinge on the growth prospects of most major advanced and emerging economies. India is, however, expected to withstand these external headwinds far better than many other countries.

— Investment activity gained further steam on the back of government capital expenditure, rising business optimism and revival in private capex in certain key sectors.

Policy stance

— RBI Governor said that the MPC decided to keep the policy stance unchanged at ‘withdrawal of accommodation’ with 5 of 6 MPC members supporting for this stance.

Inflation

—  The MPC will remain watchful of inflation and remains resolute to its commitment to align inflation to the targeted level, says Das.

— RBI Governor Shaktikanta Das said that the MPC decided to raise FY24 inflation projection to 5.4 percent from 5.1 percent amid increasing food prices.

— CPI inflation forecast for July-September 2023 raised to 6.2 percent from 5.2 percent.

— CPI inflation forecast for October-December 2023 raised to 5.7 percent from 5.4 percent.

— CPI inflation forecast for January-March 2024 retained at 5.2 percent.

— CPI inflation forecast for April-June 2024 pegged at 5.2 percent.

— Inflation excluding food and fuel (core inflation) has softened by more than 100 bps from its recent peak in January 2023. The month of July has witnessed accentuation of food inflation, primarily on account of vegetables.

— Das attributed higher inflation to a spike in tomato prices and a rise in cereal pulses.

CAD

— India’s current account deficit (CAD) was contained at 2 percent of GDP in 2022-23 as compared with 1.2 percent in 2021-22. Merchandise trade deficit has narrowed in Q1 of 2023-24 with contraction in imports exceeding contraction in exports.

— Services exports and remittances are, however, expected to provide cushion to the current account deficit. The RBI, therefore, expect CAD to remain eminently manageable during the current financial year also.

—  The Indian rupee has remained stable since January 2023 and forex reserves crosses $600 billion, says Guv Das.

More transparent home loan rates reset, EMIs

— The RBI has asked lenders to enhance transparency while adjusting the interest rates and EMIs for floating-rate home loans using the external benchmark-based lending rate mechanism.

— The central bank has emphasised the necessity for banks to adopt a clear framework for determining the pricing of their floating-rate interest.

— The central bank proposes framework for allowing borrowers to switch to fixed interest rate regime.

CRR

The banking regulator said that banks have to maintain a 10 percent incremental cash reserve ratio (ICRR) from August 12 as part of the central bank's efforts to drain excess liquidity from the banking system following the withdrawal of high-value Rs 2,000 currency note.