India is poised to become the new growth engine of the world as domestic economic activity continues to be resilient, said RBI Governor Shaktikanta Das on Friday addressing post monetary policy press conference. On Friday, as per expectation, the RBI left the repo rate unchanged at 6.5 per cent. Das said while the declining core inflation is a silver line, headline CPI inflation remains vulnerable, "recurring and overlapping food price shocks."

 

RBI Governor Shaktikanta Das, as per ANI, said, "Domestic economic activity continues to be resilient. India is poised to become the new growth engine of the world...It's emphatically reiterated that the inflation target is 4 per cent and not 2 to 6 per cent. Hence, monetary policy needs to remain actively disinflationary at the current junction."

 

RBI projected that the GDP growth will be constant at 6.5 per cent in 2024–2025, with CPI inflation at 4.5 per cent. Shaktikanta Das also said that the institution is thinking of employing open market operations (OMO) sales to manage liquidity in keeping with the stance of monetary policy. 

 

OMO describes the buying or selling of government assets on the open market by the central bank. The liquidity situation will determine the timing and size of such an operation as it changes, the central bank said. 

 

Also Read: RBI MPC Meeting: Unchanged Repo Rate, Inflation Projection, Gold Loans Limit, OMO Sales — Key Takeaways

 

Here are some key comments that came out of post monetary policy press conference



RBI Governor Shaktikanta Das told reporters that we raised the repo rate by 250 basis points, however, it has not fully transmitted to bank lending and deposit rates. 


On the issue of liquidity deficit in the banking system, Das said went into a deficit mode over the past two to three weeks primarily due to advance tax and GST payments. Overall liquidity is still in surplus. Significant amounts of liquidity have accumulated as a result of the withdrawal of 2000 banknotes.


"We have announced the withdrawal of Rs 2,000 currency notes. So far, we have got back Rs 2,000 notes worth about 3.43 lakh crore, and about 12,000 crore are left. 87 percent of it has come as bank deposits," the Governor further noted. 


The central bank also notified employing open market operations (OMO) sales, briefing the press, Das said OMO sales in one tool which we thought may be required and hence we mentioned it in the statement. 


"We will watch evolving trends on liquidity & notify OMO as and when it becomes necessary, do not propose to announce any OMO calendar at the moment," Das said. 


According to a Monenycontrol report, after the RBI indication the yield on India's benchmark 10-year government bond rose 8 basis points (Bps).


When asked if OMO sales are due to liquidity management and if is it linked to global bond yields, particularly the US treasury, Das said, our liquidity management has nothing to do with global bond yields. Our liquidity management will be consistent with our monetary stance in the context of overall domestic liquidity. Our domestic bond yields are reacting to domestic factors, not international factors.

"We will use one stone to kill one bird”. He said. 


RBI Governor Shaktikanta Das also said, "It is not for me to comment on the government’s spending. It has a fiscal consolidation path that was announced in the Budget. There was some fiscal expansion due to the pandemic, but it was calibrated and measured. As for the fiscal consolidation path, the government has said it remains committed to it. So, as far as the central government’s finances are concerned, I do not see any major problems that worry the RBI."


RBI Deputy Governor Michael Patra said the historical average for net financial savings of households is about 7.5 per cent of GDP. During the pandemic, people couldn’t spend and they built up precautionary savings and this figure rose to 11 per cent of GDP. This has come down since. But the absolute level of savings has increased by 14 per cent. The higher financial liabilities of households are mostly going to housing.