Shaktikanta Das,governor,RBI
RBI projects India’s GDP growth at 6.4 per cent for 2023-24
Average retail inflation in India is projected to be at 5.3 during the next financial year
“The global economic outlook does not look as grim now as it did a few months ago. Growth prospects in major economies have improved, while inflation is on a descent though still remains well-above target in major economies. The situation remains fluid and uncertain,” RBI governor Shaktikanta Das said
Mumbai:
The Reserve Bank of India(RBI) hiked its key repo rate by a quarter percentage point on Wednesday as expected but surprised markets by leaving the door open to more tightening, saying core inflation remained high.
Since May last year, the RBI has increased the short-term lending rate (repo rate) by 250 basis points, including today’s, to contain inflation, driven mainly by external factors, especially global supply chain disruptions following the Russia-Ukraine war outbreak.
The RBI has projected a growth rate of 6.4% for fiscal year 2024.
RBI governor Shaktikanta Das said that the Indian economy looks resilient even though considerable uncertainties remain on global commodity prices.
“The stickiness of core or underlying inflation is a matter of concern. We need to see a decisive moderation in inflation. We have to remain unwavering in our commitment to bring down inflation,” explained Das said as he announced the rate hike.
Broad-based credit growth, improving capacity utilisation, government’s thrust on capital spending and infrastructure should bolster investment activity,”Das said.
“According to our surveys, manufacturing, services and infrastructure sector firms are optimistic about the business outlook. On the other hand, protracted geopolitical tensions, tightening global financial conditions and slowing external demand may continue as downside risks to domestic output,” he noted.
The GDP projections for Q1, Q2, Q3, and Q4 2023-24 are estimated at 7.8 per cent, 6.2 per cent, 6.0 per cent, and 5.8 per cent, respectively, with risks, evenly balanced.
“The global economic outlook does not look as grim now as it did a few months ago. Growth prospects in major economies have improved, while inflation is on a descent though still remains well-above target in major economies. The situation remains fluid and uncertain,” Das said.
The central bank said that its policy stance remains focused on the withdrawal of accommodation, with four out of six members voting in favour of that position.
The RBI has projected India’s real GDP growth to be at 6.4 per cent for the next financial year 2023-24.
India’s retail inflation during the month of December was at 5.72 per cent, versus 5.88 per cent in November and 6.77 per cent during October.
India’s retail inflation was above RBI’s six per cent target for three consecutive quarters and had managed to fall back to the RBI’s comfort zone in November 2022.
Consumer inflation is projected to be at 6.5% in the fiscal year 2023 and 5.3% for the fiscal year 2024.
“It seems reasonable to conclude that until (some) measures of inflation present less of a threat, by falling below 6% and remaining there for a couple of months, we can’t rule out further rate hikes,” economists at ING said in a note.
“So we will be amending our forecasts and adding a further 25 bps, taking peak policy rates to 6.75% after this latest increase and pushing back the timing of eventual rate cuts until next year.”
Capital Economics said it believes the hiking cycle has ended, but noted there was clearly a possibility of another increase in April, with plenty hinging on inflation readings for January and February.
Deputy RBI Governor Michael Patra said the GDP projections for the next financial year look achievable.
Most analysts had expected a hike on Wednesday to be the final increase in the RBI’s current tightening cycle, which has seen it raise rates by 250 bps since May last year.
A growing number of central banks around the world have signalled a pause or halt in their tightening campaigns in recent weeks as consumer inflation comes off the boil and growth in their economies shows signs of softening.
Indian stocks extended modest gains after the decision, while bond yields rose and the rupee was little changed.
The monetary policy committee (MPC), comprising three members from the central bank and three external members, raised the key lending rate or the repo rate to 6.50%, also in a split decision.
Four of the six members voted in favour of the move.
While the effects of earlier rate hikes are still working their way through the economy, further calibrated monetary policy action is warranted, Das added.
Das said that the inflation-adjusted, real interest rate remains below pre-pandemic levels and liquidity remains surplus, even though it is lower than during the pandemic.
The RBI has brought down the liquidity surplus in the banking system to below Rs 2 trillion rupees ($24.19 billion) from around 9-10 trillion rupees in the aftermath of pandemic-related support measures.
“Core inflation is sticky… But (it) will moderate if monetary policy remains resolute,” Patra said in a post meeting news conference.
The Indian rupee was little changed to the U.S. dollar at 82.69 compared with 82.67 prior to the policy announcement. It briefly rose to 82.62 after RBI maintained its withdrawal of accommodation stance.
The benchmark bond yield was at 7.3391% against 7.3124% before the policy decision and the previous close of 7.3102%.
The Nifty 50 index (.NSEI) was up 0.78% at 17,860.50, as of 11:39 a.m. IST, while the S&P BSE Sensex (.BSESN) rose 0.69% to 60,701.39.
The Shaktikanta Das-headed Monetary Policy Committee (MPC) started its three-day meeting on February 6 amid the rate hiking spree that started in May last year to check inflation.