RBI Monetary Policy: Key takeaways from Governor Shaktikanta Das' address

Shaktikanta Das

During the Reserve Bank of India's Monetary Policy Committee (MPC) on August 5, RBI Governor Shaktikanta Das announced the hike in repo rate by 50 bps to 5.40% with immediate effect.

The Governor said that inflation is expected to remain above the central bank's 6% threshold in the second and third quarters of this fiscal year, for which the MPC stressed that sustained high inflation could destabilise inflation expectations and harm growth in the medium term.

Volatility in global financial markets is impinging upon domestic financial markets leading to imported inflation, according to the RBI governor.

Also Read | RBI Monetary Policy Live Updates: RBI hikes repo rate by 50 bps to 5.4%, GDP growth forecast retained at 7.2%

Consumer price inflation has eased from its surge in April but remains uncomfortably high and above upper threshold of target, the Governor added.

"MPC decided to focus on withdrawal of accommodation to keep inflation within target while supporting growth," said, RBI Governor

Marginal Standing Facility (MSF) and bank rates have been revised at 5.65%. SDF rate was adjusted to 5.15%, according to the Governor.

Inflation forecast

• Consumer price index (CPI) inflation remains uncomfortably high and is expected to remain above 6%: RBI Governor.
• CPI forecast for FY23 has been kept unchanged at 6.7%
• CPI inflation for Q1- 2023-24 is projected at 5%

The RBI, in its release, said, "Overall system liquidity continues in surplus, with average daily absorption under the LAF at ₹3.8 lakh crore during June-July. Money supply (M3) and bank credit from commercial banks rose (y-o-y) by 7.9 per cent and 14.0 per cent, respectively, as on July 15, 2022. India’s foreign exchange reserves were placed at US$ 573.9 billion as on July 29, 2022."

"FDI inflows also improved to USD 13.6 billion in Q1 this fiscal, against USD 11.6 billion in the corresponding period last year," said, Das.

RBI Governor in his address, also proposed to enable Bharat Bill Payment System to accept cross-border inward bill payments. This will enable NRIs to undertake bill payments for utilities, education and other suh payments on behalf of their families in India. This will benefit the senior citizens in particular.