Reserve Bank of India (RBI) Governor Shaktikanta Das said the recent spike in CPI inflation is expected to be short-lived going by past trends. Das, who was addressing post-MPC press meet on Thursday, said, “In such situations, we need to be watchful and not resort to knee-jerk reactions.” The governor said that the incremental CRR was considered necessary in the background of the liquidity overhang. We considered it desirable in the interest of financial and price stability. It will have an impact on inflation also. It is a purely temporary measure.
“There is excess liquidity that has to be dealt with. But there are periods when there could be liquidity pressure, such as when tax payments are made to the government. But this deficit is temporary and lasts only a few days,” he noted. Das pointed out that financial sector stability is well maintained. “The RBI looks forward to co-operation from the players in the sector.”
The central bank’s monetary policy committee (MPC) headed by Governor Shaktikanta Das on Thursday announced to keep policy rate unchanged at 6.5 per cent. This was third time in a row that the RBI opted for a pause in rate hike. During his address, Governor Das said that the MPC unanimously voted to leave the repo rate unchanged at 6.5 per cent.
He said the Standing Deposit Facility (SDF) rate also retained at 6.25 per cent. Marginal Standing Facility rate and Bank Rate also retained at 6.75 per cent. The MPC also decided to remain focused on withdrawal of accommodation with preparedness to act should situation so warrant.
After hiking the repo rate six consecutive times since May 2022 by 250 basis points to 6.5 per cent, the central bank has maintained a status quo in the last two MPC meetings.
Dr. DK Srivastava, chief policy advisor, EY India, said, “Owing to the seasonal inflationary pressures especially on vegetable prices, the RBI has revised upwards, its CPI inflation projection for the second quarter of 2023-24 by 1 per cent point from its earlier estimate of 5.2 per cent (June 2023) to 6.2 per cent. The annual inflation has been revised upwards to 5.4 per cent for 2023-24. Real GDP growth estimates remain buoyant at 6.5 per cent for the current year. Relying on domestic demand to take care of growth in spite of the continued supply-side challenges, the RBI has kept the repo rate unchanged at 6.5 per cent with continued monitoring of the liquidity situation. The fiscal landscape provides considerable reassurance for maintaining investment momentum. The central government has demonstrated proactive measures by front-loading its capital expenditure, resulting in a remarkable growth of 59.1 per cent during the first quarter of 2023-24. This prudent fiscal approach contributes significantly to the overall environment for sustainable investment.”