RBI’s policy: cautious but bullish
The monetary policy of RBI unanimously approved keeping the benchmark lending rates unchanged for the second consecutive meeting in a view on reigning in inflation while maintaining growth.
The MPC had hiked rates by 250 bps since May 2022 but has paused since April. RBI Governor Shaktikanta Das declared that the Monetary Policy Committee (MPC) unanimously made the decision to keep the rate unchanged at 6.5%.
Governor of RBI has also stated that headline inflation in India still remains above the central bank’s target of 4 per cent and it might be remained so during the rest of the year.
The goal of RBI about inflation is not only limited to achieve the inflation target of 4% and control the inflation within the comfort band of 2-6%.
This was a ‘Goldilocks’ pause for the RBI. In the run-up to the policy meeting, the economy finds itself in a fortuitous ‘Goldilocks’ macro situation, with better-than-expected Q4 FY23 GDP growth and inflation tracking closer to the RBI’s mid-point target of 4%.
Important point on recent policy review:
- Repo rate has not been changed and remains at 6.5%.
- The standing deposit facility (SDF) rate is also unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.
- If we talk about Inflation forecast, CPI inflation is estimated at 5.1% for FY24.
- The progress of the southwest monsoon is significant in over headline inflation.
- GDP growth is anticipated at 6.5% for financial year 24.
- On the other hand, Real GDP growth in 2022-23 came out to be stronger than expected and is holding up well.
- The policy repo rate has been hiked by 250 basis points since May 2022 and is still working its way through the system.