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'Our umbrella strong but inflation a worry': Key highlights of RBI monetary policy

'Our umbrella strong but inflation a worry': Key highlights of RBI monetary policy

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By CNBCTV18.com  IST (Published)

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RBI Policy Highlights: The MPC unanimously voted to hike the repo rate by 50 bps to 5.40 percent. The RBI's decision is a response to a spike in inflation that has forced major central banks around the world to raise rates.

Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced that the central bank's Monetary Policy Committee (MPC) raised the repo rate by 50 basis points to 5.40 percent in its bi-monthly policy meeting. A repo rate is the rate at which the central bank of a country lends money to commercial banks.
This is the third consecutive rate hike by the RBI. The RBI's decision is a response to a spike in inflation that has forced major central banks around the world to raise rates.
The RBI maintained its retail inflation forecast at 6.7 percent while it has retained the GDP growth forecast at 7.2 percent for this year.
With strong and resilient fundamentals, India is expected to be the fastest growing economy in FY23, said Das.
However, he added that sustained high inflation could destabilise expectations and harm growth in the medium term.
Here are the key highlights:
  • The MPC unanimously voted to hike the repo rate by 50 bps to 5.40 percent and keep the stance unchanged.
  • Focus remains on withdrawal of 'accommodation' to ensure that inflation remains within the target going forward, while supporting growth.
  • Domestic economic activity resilient, progressing broadly along the lines of the June MPC resolution.
  • Consumer price inflation eased from its surge in April but remains uncomfortably high.
  • Volatility in global financial markets is impinging upon domestic financial markets.
  • Inflation Forecast
    • CPI Inflation projection for FY23 retained at 6.7 percent
    • Q2 CPI seen at 7.1 percent vs the earlier 7.4 percent
    • Q3 CPI seen at 6.4 percent vs the earlier 6.2 percent
    • Q4 CPI projection retained at 5.8 percent
    • Q1 FY24 CPI seen at 5 percent
    • Incipient signs of factors that could lead to further softening of domestic inflationary pressures
    • There remain significant uncertainties with respect to inflation
    • Growth Forecast
      • Real GDP growth forecast for FY23 retained at 7.2 percent
      • Q1 FY23 GDP growth forecast retained at 16.2 percent
      • Q2 FY23 forecast retained at 6.2 percent
      • Q3 FY23 forecast retained at 4.1 percent
      • Q4 FY23 forecast retained at 4 percent
      • Q1FY24 GDP growth seen at 6.7 percent
      • Domestic economic activity remains resilient
      • Rural demand indicators exhibited mixed signals
      • Capacity utilisation in manufacturing sector now above its long-run average, signaling need for fresh investment activity in additional capacity creation
      • Increase in capacity utilisation, govt’s capex push, large expansion in bank credit should support investment activity
      • Liquidity
        • Surplus liquidity has come down to Rs 3.8 lakh crore during June-July from Rs 6.7 lakh crore during April-May
        • RBI will remain vigilant on liquidity front, conduct two-way fine-tuning operations as warranted (VRR and VRRR)
        • On Rupee
          • The governor said that the rupee has moved in a relatively orderly fashion depreciating by 4.7 percent in FY23 against dollar, faring much better than several reserve currencies and EME and Asian peers
          • Depreciation of the rupee is more on account of the appreciation of the US dollar rather than weakness in macro fundamentals of Indian economy
          • Market interventions by RBI have helped in containing volatility
          • RBI has ensured orderly movement of the rupee
          • RBI will remain watchful and focused on maintaining stability of rupee
          • Additional Measures 
            • Master Direction on Managing Risks in Outsourcing of Financial Services.
            • To issue draft RBI (Managing Risks and Code of Conduct in Outsourcing of Financial Services) Directions, 2022, for public comments shortly
            • Inclusion of Credit Information Companies (CICs) under RBI’s Integrated Ombudsman Scheme
            • Standalone Primary Dealers (SPDs): Proposed to enable SPDs to offer all foreign exchange market-making facilities as currently permitted to Category-I Authorised Dealers. Permitting SPDs to deal in offshore Foreign Currency Settled Overnight Indexed Swap Market
            • Committee on MIBOR Benchmark: To set up a committee to undertake an in-depth examination of issues, including need for transition to an alternate benchmark
            • Enabling Bharat Bill Payment System (BBPS) to process cross-border inbound bill payments
            • Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!