The Reserve Bank of India (RBI) declared its monetary policy today. In the third bi-monthly RBI Monetary Policy Committee meeting, the six-member MPC headed by Governor Shaktikanta Das decided to keep the repo rate unchanged at 6.5% in August. The policy repo rate has been increased by 250 bps since May 2022. The MPC kept the withdrawal of accommodation stance unchanged as well.
The RBI MPC has increased its CPI inflation forecast for FY24 to 5.4% from 5.1%. For Q2, the RBI has projected the CPI inflation to be at 6.2%, 5.7% in Q3, and 5.2% in Q4. It further projected CPI inflation to be at 5.2% for Q1FY25. Commenting on inflation trends, Shaktikanta Das said that a spike in tomato prices and a rise in cereal, pulses contributed to inflation
"Core inflation softened by more than 100 bps. July has witnessed a spike in food inflation primarily on account of vegetables due to the rise in tomato prices. Food prices may see a significant correction in the coming months," said Shaktikanta Das. Monetary policy transmission is still underway, and headline inflation remains higher than the 4% target, said Shaktikanta Das, adding that the MPC will remain watchful of inflation and remains resolute in its commitment to align inflation to the targeted level.
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FY24 6.5% vs 6.5% earlier Q1FY24 8% vs 7.8% earlier Q2FY24 6.5% vs 6.2% earlier Q3FY24 6% vs 6.1% earlier Q4FY24 5.7% vs 5.9% earlier Q1FY25 6.6%
In his address post the RBI MPC meet, RBI governor Shaktikanta Das stated that the Indian economy is exuding enhanced strength and stability. He added that the economy has made significant progress toward controlling inflation. "India is uniquely placed to benefit from the ongoing transformational shift in the global economy," said Das.
Talking about policy rates globally, Shaktikanta Das stated that policy rates will stay higher for longer in global economies. RBI governor also noted that headline inflation is easing unevenly across countries, and remains above target in major economies. "Global growth is likely to remain low by historical standards in the coming few years," Das said.
RBI governor Shaktikanta Das said that the level of surplus liquidity has gone up due to the withdrawal of Rs 2,000 banknotes, and dividends to the government. Meanwhile, he also highlighted that the Indian rupee has remained stable since January 2023. India's forex reserves have crossed $600 billion. "Need to continue efforts to maintain macro financial growth trajectory; India can become the new growth engine for the world," said Das.
Global economy continues to face daunting challenges of inflation, geo-political uncertainty, and extreme weather conditions, said Shaktikanta Das, adding that India expected to withstand external headwinds on the economic growth front. "Our economy has continued to grow at a reasonable pace becoming the 5th largest economy in the world, contributing around 15% to global growth," said Das.
Commencing from August 12, banks will be required to uphold an additional Cash Reserve Ratio (CRR) of 10% on the growth in their Net Demand and Time Liabilities (NDTL) between May 19 and July 28, according to the statement made by Governor Shaktikanta Das. The prevailing CRR will remain unaffected.
RBI boss Shaktikanta Das also announced measures to boost UPI payments in the country. These measure included - Enable conversational payments on UPI - Introducing offline payments on UPI using near-field communications - Transaction limit for UPI lite raised from Rs 200 to Rs 500