RBI announces unchanged policy repo rate!

The risk of global shocks remains! Colin Shah 

In a Monetary Policy Statement, 2023-24 Resolution of the Monetary Policy Committee (MPC), on the basis of an assessment of the current and evolving macroeconomic situation, the MPC at its meeting decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent.

The standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth. 

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.  

On the RBI policy perspective, Colin Shah, MD, Kama Jewelry expressed that, “the RBI's decision to hold rates is a prudent one, as the effects of the previous rate hikes are still having effects on the system. The unchanged policy stance indicates the nimbleness to act basis the evolving situation.  

We are currently witnessing lower inflation, a stable growth rate, and absolute positive system liquidity. The RBI maintaining a growth rate of 6.5% and lowering the inflation estimate to 5.1% was encouraging. It indicates consumer discretionary spending. Largely, we expect an easing of rates by CY24. However, the risk of global shocks remains.”  

In their outlook RBI considered Rabi Crop & many related factors. The RBI Outlook said, going forward, the headline inflation trajectory is likely to be shaped by food price dynamics. Wheat prices could see some correction on robust mandi arrivals and procurement.  

The forecast of a normal south-west monsoon by the India Meteorological Department (IMD) augurs well for kharif crops; however, the spatial and temporal distribution of the monsoon would need to be closely monitored to assess the prospects for agricultural production. Crude oil prices have eased but the outlook remains uncertain.  

According to the early results from the Reserve Bank’s surveys, manufacturing, services and infrastructure firms polled expect input costs and output prices to harden. A clearer picture will emerge when the final survey results are available.  

Taking into account these factors and assuming a normal monsoon, CPI inflation is projected at 5.1 per cent for 2023-24, with Q1 at 4.6 per cent, Q2 at 5.2 per cent, Q3 at 5.4 per cent and Q4 at 5.2 per cent. The risks are evenly balanced.  

The next meeting of the MPC is scheduled during August 8-10, 2023.