Highlights of the Monetary Policy Committee in December 2023

Highlights of the Monetary Policy Committee in December 2023

RBI has successfully conducted its Monetary Policy Committee December meeting and decided to not to change the Policy repo rate at 6.5%. Other benchmark interest rates are also unchanged.

This is a unanimous decision to keep the repo rate unchanged at 6.5%.  RBI has also maintained the withdrawal of accommodative stance by the majority of 5 out of 6 members of the Monetary Policy Committee in December.

What is withdrawal of accommodation?

Withdrawal of accommodation means the Reserve Bank of India is going to reduce the money supply to tighten the inflation in the market.

Benchmark interest rates:

Benchmark interest rates after the Monetary Policy Committee December meeting:

Policy repo rate: 6.5%

Reverse repo rate: 3.35%

standing deposit facility (SDF) : 6.25%

marginal standing facility (MSF) : 6.75%

Bank rate: 6.75%

As per the RBI, the inflation rate is going to be above the tolerant limit decided by RBI in upcoming months. The economic environment across the world is still fragile. However, India’s growth is remarkable.

GDP forecast:

RBI has also changed its last projection of GDP growth rate for this financial year FY24 that is increased by 50 basis points from the last projection. RBI forecasted the country’s GDP will grow at 7% which is 50 basis points higher than last projection 6.5%.

The GDP growth in the third quarter is projected by the RBI to be 6.5%, Earlier it was 6%. Along with that Q4 GDP is projected to be 6% and earlier it was 5.7%.

Inflation projection:

If we talk about the inflation forecast by the RBI,it is also unchanged from the last projection. It remains the same as the last Monetary Policy Committee decided. The CPI inflation for FY24 is at 5.4% while in Q3 and Q4 it is projected to be 5.6% and 5.2% respectively.

The CPI inflation for the first, second and third quarter of next fiscal year FY25 is expected to be at 5.2%,4% and 4.7% respectively.

According to the statement of RBI’s Governor, RBI was successful in bringing the inflation rate between the tolerance limit in the month of October and it is optimistic to soften inflation rate in the upcoming time frame.

Some other decisions:

• RBI has also decided to bring a framework for all regulated entities on connected lending. It will strengthen the credit management by all regulated entities.
• Rbi has also stated that from 30 December 2023, reversal of liquidity facility even on weekends and holidays is allowed under SDF and MSF.
• RBI has also increased the UPI limit for health care and education payments upto 5 lakh.
• RBI also proposed to increase the limit of recurring digital payments such as card bills, insurance payments upto 1 lakh from 15k.

Conclusion:

To not change the repo rate straight for the fifth bi monthly meeting of MPC and increase the protection of GDP by 50 basis point is a strategic step and showcase a robust framework and a strong view of Policymakers to control the inflation and increase the pace of the economy.

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