RBI Monetary Policy 2023 Highlights

Key highlights of RBI Monetary Policy 2023

RBI MPC Highlights 23

Governor Shaktikanta Das announced the Monetary Policy Committee’s (MPC) decision on the RBI. Here are the Key RBI MPC Highlights

“Never lose your faith in the destiny of India.”

– Governor Shaktikanta Das

1. RBI MPC raise the repo rate by 25 basis points to 6.50% on Wednesday.

2. The Governor says that while inflation is expected to moderate in FY24 it will rule above the 4% target-

The Governor of the Reserve Bank of India (RBI) has stated that although inflation is expected to decrease in financial year 24, it may still exceed the target of 4%. The International Monetary Fund (IMF) has also revised its global growth projections for the years 2022 and 2023, indicating an upward trend.

3. The Governor says the Indian economy remains resilient.-

The Reserve Bank of India (RBI) governor reported that capacity utilization increased to 74.5% in the second quarter, indicating positive growth in the private sector. Investment activity continues to show improvement, with non-food bank credit growing by 16.7% as of January 27, 2023, and robust growth in fixed investment seen in November and December. Despite a decline in merchandise exports, the indicators of fixed investment are showing signs of strength. The governor also stated that there are indications of additional capacity being created in the private sector.

4. RBI GOV says real GDP growth for FY24 is projected at 6.4%-

According to Das, the Consumer Price Index (CPI) inflation for the fiscal year 2023 is expected to be 6.5%, with the fourth quarter estimated to be at 5.7%. There is a considerable amount of uncertainty regarding the trajectory of global commodity prices. Commodity prices are likely to remain high with the easing of Covid-19 restrictions, and this could result in the pass-through of commodity prices keeping core inflation elevated. The low volatility of the Indian rupee compared to other currencies will limit the impact of imported price pressures. The average crude oil basket is projected to be $95 per barrel.

5. RBI projects retail inflation lower at 6.5% for FY23 from 6.7%; 5.3% for the next fiscal-

The Consumer Price Index (CPI) is projected to reach 5.3% in fiscal year 24. Inflation is expected to be at 5% in the first quarter, 5.4% in the second and third quarters, and 5.6% in the fourth quarter. There is concern about the persistent nature of core inflation and it is crucial to see a clear decrease in inflation. It is imperative to maintain a strong commitment to reducing CPI inflation. The monetary policy must be adjusted accordingly to ensure a sustainable reduction in inflation.

6. The RBI has reported that system liquidity remains in surplus, although it has diminished in comparison to previous levels. The central bank has stated that it will remain agile and ready to cater to the productive requirements of the economy. To ensure proper functioning, the RBI will carry out operations on both sides of the liquidity adjustment framework as necessary. In line with this, the RBI has proposed restoring the market hours of the G-Sec market to 9 am to 5 pm. additionally, the RBI has suggested expanding G-Sec lending and borrowing activities to further enhance market liquidity.

7. The current account deficit (CAD) for H1FY23 was 2.2% of GDP, and it will moderate in H2FY23.

Regulatory organizations would receive recommendations from RBI on how to safeguard against the effects of climate change, according to Das. General guidelines for accepting green deposits, Framework for disclosing financial risks associated to climate change, and advice on stress testing and climate scenario analysis would be provided

8. RBI GOV says MPC will continue to maintain a strong vigil on inflation outlook-

The Monetary Policy Committee of the Reserve Bank of India will continue to closely monitor the inflation outlook. Inflation is expected to remain at 5.6% in the fourth quarter of the financial year 2023. Although the policy rate has increased, it still remains lower than its pre-pandemic levels. When taking inflation into consideration, the policy rate is still lower than its pre-pandemic level. In general, the overall monetary conditions continue to be supportive of the economy.

9. Other Measures to be taken by RBI-RBI proposes to allow some foreign travelers and inbound travelers in India to use UPI for merchant payments.RBI To Launch QR Code-Based Coin Vending Machines that will issue coins against debits to customer’s UPI-linked accounts

The Reaction of the Market

Following the Reserve Bank of India’s announcement of a lesser-than-anticipated interest rate increase, Indian equities were trading higher on Wednesday. As of 10:06 a.m. IST, the S&P BSE Sensex was up 0.68% to 60,695.09, while the Nifty 50 index was up 0.72% at 17,849.85.

Indian government bond rates increased slightly on Wednesday as a result of the Reserve Bank of India (RBI) maintaining its monetary stance while raising the repo rate as anticipated. As of 11:30 IST, the benchmark 10-year yield was 7.3435 percent. Prior to the policy decision, it was trading at 7.3124% after Tuesday’s closing price of 7.3102%.

Rupee prices were unchanged at 82.69 to the dollar. The RBI MPC’s decision to raise the repo rate by 25 basis points had no significant effect on the currency since the markets had already priced it in.

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