RBI Monetary Policy: Central Bank Raises Repo Rate By 35 Bps To 6.25%. FY23 GDP Projection At 6.8%
SDF adjusted to 6 per cent; Monetary Policy Committee's majority view was to withdraw accommodative stance; CPI inflation forecast for FY23 retained at 6.7 per cent, Shaktikanta Das announced
The Reserve Bank of India’s (RBI's) Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, on Wednesday announced a 35 basis point hike in the repo rate to 6.25 per cent. The SDF stand adjusted to 6 per cent, said Das, adding that the MPC's majority view was to withdraw accommodative stance.
In his speech, Das said that the RBI lowers economic growth projection to 6.8 per cent from earlier estimate of 7 per cent for current fiscal. The central bank sees inflation 6.7 per cent during FY23 with Q3 at 6.6 per cent and Q4 at 5.9 per cent, according to the governor.
He said that globally inflation remains high and broad based in the aftermath of Russia-Ukraine war, while adding that Indian economy remains resilient; India is seen as a bright spot in a gloomy world. "The battle against inflation is not over yet. CPI inflation forecast for April-June 2023 retained at 5.0 per cent, while the CPI inflation seen at 5.4 per cent in July-September 2023," Das said.
Indian rupee has appreciated by 3.2 per cent during April-October in real terms, even as major currencies have depreciated. Rupee should be allowed to find its level, the governor said.
Das announced that adjusted for inflation, policy rate remains accommodative, while inflation expected to be above 4 per cent in the next 12 months. The liquidity in the banking system remains in surplus; agri sector remains resilient as Rabi sowing stands at 6.8 per cent higher than normal. Core inflation exhibiting stickiness; further caliberated monetary policy action needed, according to Shaktikanta Das.
In his MPC speech Das pointed out manufacturing, services PMI for India in November among the highest in the world. Economic activity continued to gain strength in October. Tractor, two-wheeler sales suggest rural demand is recovering.
"Will look for durable signs for turn in liquidity cycle for infusing liquidity. BI remains nimble and flexible in its liquidity management operations. So, even though the RBI is in absorption mode, we are ready to conduct LAF operation that inject liquidity as may be needed. We will look for a durable sign of a turn in the liquidity cycle. Market participants must wean themselves away from overhang of liquidity surpluses," Das said.
"The RBI remains nimble and flexible in its liquidity management operations. So, even though the RBI is in absorption mode, we are ready to conduct LAF operation that inject liquidity as may be needed. We will look for a durable sign of a turn in the liquidity cycle," the governor stated.
Earlier Reuters said that the hike in key lending rate by 35 basis points is expected as the inflation continues to stay above its tolerance band but markets will be looking to its outlook on growth and prices for direction.
To contain the inflation, the central bank this year has already hiked the basic lending rate by 190 bps, from 4.4 per cent in May to 5.9 per cent in September. While the RBI raised the repo rate by 40 bps in the May MPC meeting, after that, the RBI hiked the key interest rate by 50 basis points three times, in June, August, and September.
The RBI's outlook is an important pointer to future policy moves, economists said. Even as global crude oil prices continued to fall in recent months but yet to be reflected in domestic prices. Brent crude has fallen in six of the last seven months and was trading at around $83 a barrel versus its peak of $139 touched in March.
"Though global oil prices are lower, pump prices in India have not changed and remained at the same levels since May 2022 and unless pump prices come down, it won't have any direct implications for domestic inflation," said Indranil Pan, chief economist, YES Bank, according to the Reuters.
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