Reserve Bank of India (RBI) Governor Shaktikanta Das’ address marks the conclusion of the first Monetary Policy Committee (MPC) meeting of the fiscal year 2023-24 held on 6th, 7th and 8th June. 

Dr Shashanka Bhide, Dr Ashima Goyal, Prof Jayanth Varma, Dr Rajiv Ranjan, Dr Michael Debabrata Patra and Governor Shaktikanta Das are the members of the MPC. 

Let’s examine the key highlights and takeaways from the Governor’s address. 

Repo Rate

The MPC unanimously agreed to maintain the central bank’s benchmark interest rate at 6.50%. As a result, the bank rate and the marginal standing facility (MSF) rate will stay at 6.75%. The standing deposit facility (SDF) rate will remain at 6.25%.

However, Das stressed that the decision to pause the repo rate is only for this meeting, and the committee will not hesitate to take further action in future meetings if the micro and macro-economic situation demands.

He added that the impact of the cumulative rate hike of 250 basis points (bps) in the last 11 months is enough to keep inflationary pressures contained for the coming months. The MPC had 

The MPC had also decided, by a five-to-one majority, to stay focused on ‘withdrawal of accommodation’ to ensure that inflation progressively aligns with the target while supporting growth.

Inflation

In his statement, the RBI Governor mentioned that the headline consumer price index (CPI) inflation is moderating but remains above the central bank’s targets. It has come down to 4.7% during March-April 2023, the lowest reading since November 2021. The food, fuel and core categories observed ease in inflation.

Considering factors such as rabi and kharif harvest, expectations of monsoon, and other geopolitical conditions, the RBI’s projected inflation for FY24 has marginally declined to 5.2%. Inflation is projected at 5.1% for Q1 FY2024, followed by 5.4% in the second and third quarters and 5.2% in the fourth quarter of the current financial year.

GDP Forecast

India reported a gross GDP growth of 7.2% against RBI’s projection of 7%, surpassing its pre-pandemic level by 10.1%. The real GDP in the last quarter of the previous fiscal year increased to 6.1% from 4.7% in the quarter before that. 

Based on the developments, MPC revised the GDP growth projection to 6.50% for the current financial year of FY2023-24, marginally up from its earlier estimate of 6.40%.

The quarterly GDP growth projections for the year are 8%, 6.5%, 6% and 5% for the first, second, third and fourth quarters, respectively. 

Financial Sector and Liquidity 

With the recent turmoil in the banking sector in developed countries, the Indian banking and nonbanking financial service sector remain healthy. He added, “Economic activity remains resilient, and real GDP growth is expected to have been 7 per cent in FY23.” RBI will keep a close watch on any further upheavals.  

The central bank has also introduced Platform for Regulatory Application, Validation and Authorization (PRAVAAH), a secured web-based centralised portal to simplify and streamline the application process for license authorisation or regulatory approvals from the RBI.

RBI will also develop a web portal to enable search across multiple banks for possible unclaimed deposits. To expand the scope of UPI, RBI has permitted banks to operate pre-sanctioned credit lines through the UPI.

According to the statement by RBI governor Das, India’s Current Account Deficit (CAD) will remain moderate in Q4 FY23 and also eminently manageable going forward. He added that the RBI would maintain an agile approach to manage liquidity in the government’s borrowing programme in a non-disruptive manner.