RBI Monetary Policy Unveiled: Repo Rate Unchanged Amid Shifting Economic Landscape

Steady Repo Rate Amidst Shifting Dynamics

1. The Reserve Bank of India (RBI) Governor, Shaktikanta Das, unveiled the third bi-monthly monetary policy for FY24 after a three-day meeting of the Monetary Policy Committee (MPC).
2. Repo Rate has remained unchanged for the 3^rd time in a row, at 6.5% widely expected.
3. Over the last year, RBI has increased the repo rate by 250bps via six consecutive rate hikes, from 4% in April 2022 to 6.5% in Feb 2023, after having kept it constant for almost 2 years.

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Consistent Interest Rate Framework

1. The repo rate remains at 6.5%, alongside other key rates: Standing Deposit Facility (SDF) rate at 6.25%, Marginal Standing Facility (MSF) rate, and Bank Rate at 6.75%.
2. The Cash Reserve Ratio (CRR) remains steady at 4.5%, reflecting the RBI’s comprehensive approach to monetary management.

GDP Projections: Balance Between Optimism and Pragmatism

1. The real GDP growth projection for FY24 maintains at 6.5%.
2. Quarterly forecasts reveal a gradual growth moderation: Q1FY24 at 8%, Q2FY24 at 6.5%, Q3FY24 at 6%, and Q4FY24 at 5.7%.
3. Encouragingly, Q1FY25 projects growth at 6.6%.

Inflation Outlook: Prudent Adjustments

1. The Consumer Price Index (CPI) inflation forecast for FY24 has been upwardly revised to 5.4% from 5.1%.
2. Quarter-wise projections indicate measured caution: Q2FY24 at 6.2%, Q3FY24 at 5.7%, and Q4FY24 retaining the 5.2% forecast.
3. FY25 begins with CPI inflation for April-June 2024 pegged at 5.2%.

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Liquidity Management: Addressing Dynamic Flows

• Scheduled banks are mandated to maintain an incremental Cash Reserve Ratio (I-CRR) of 10% on the rise in net demand and time liabilities between specific dates.

Adapting to Changing Financial Landscapes

• The Infrastructure Debt Funds (IDFs) framework has been revamped, including withdrawal of sponsor requirements, expanded financing for toll-operate-transfer (ToT) projects, ECB fund-raising for IDFs, and optional tri-partite agreements for PPP(Public Private Partnership)  projects.

Innovative Financial Horizons

• Launch of Conversational Payments on UPI, increase in UPI Lite transaction limit to ₹500, and introduction of offline payments via Near Field Communication (NFC) technology.

Takeaway: The RBI has held the repo rate resolutely at 6.5%. Amidst this stability, a robust 6.5% growth projection for FY24 stands tall, while inflation forecasts cautiously ascend to 5.4%. 

With innovation in focus, the RBI charts a course towards revamped infrastructure financing and cutting-edge Conversational Payments on UPI. This data-driven strategy showcases the RBI’s mastery in steering India’s economic trajectory amidst the ebb and flow of dynamic times.

Also Read: Decoding HSBC India Manufacturing PMI : An Analysis of December's Economic Landscape