Shaktikanta Das,Governor,RBI
Robust growth provides space for monetary policy to remain focused on bringing inflation down to the central bank’s 4% target, said RBI Governor Shaktikanta Das
MUMBAI:
The Reserve Bank of India held the key repo rate unchanged for a seventh straight policy meeting on Friday as it expects growth in the economy to remain robust but sees inflation staying above its 4% target.
The Reserve Bank of India(RBI) kept the main lending rate, unchanged at 6.5%, in line with expectations. The repo rate was raised by a total of 250 basis points between May 2022 and February 2023.
Robust growth provides space for monetary policy to remain focused on bringing inflation down to the central bank’s 4% target, RBI Governor Shaktikanta Das said in his statement.
Monetary policy must remain actively disinflationary at this stage, Das said.
“Turning to the present, inflation is on a declining trajectory and GDP growth is buoyant. At this juncture, we should not lower our guard but continue to work towards ensuring that inflation aligns durably and sustainably to the target,” said Das..
Inflation has come down significantly but remains above the 4 per cent target. Food inflation continues to exhibit considerable volatility impeding the ongoing disinflation process.
High and persistent food inflation could unhinge anchoring of inflation expectations which is underway
“ Our ongoing effort is to ensure fuller transmission of policy actions and anchoring of household inflation expectations. The strong growth momentum, together with our GDP projections for 2024-25, give us the policy space to unwaveringly focus on price stability,” explained Das.
Five out of six members voted in favour of the rate decision while the monetary policy stance of ‘withdrawal of accommodation’ was retained with a majority of five votes.
The central bank said the Indian economy is expected to expand by 7% in the fiscal year 2025, unchanged from its earlier forecast.
Strengthening rural demand, improving employment conditions and a sustained pick up in the manufacturing sector should boost consumer demand, Das said.
Retail inflation for 2024-25 is seen at 4.5%, Das said, with volatile food prices seen as a continuing risk.
“Our effort is to ensure inflation aligns to target on a sustained basis,” Das said.
The status quo policy left markets unmoved.
The Indian rupee was little changed against the U.S. dollar at 83.4150, just above a record low hit on Thursday, while bond yields rose 2 basis points to 7.1217%. The NSE Nifty 50 index as well as the BSE Sensex were down 0.2%.
“We do not see much scope for any rate easing until the second quarter of 2024-25,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
Niraj Kumar, chief investment officer, Future Generali India Life Insurance Company said, MPC continues to be nimble and has deftly balanced the macro backdrop of robust growth and inflation above target of 4%. Although considerable progress has been made in bringing the inflation below its peak levels.
Further, MPC has been cognizant of robust foreign flows along with ongoing geopolitical tensions and risks emanating from higher crude prices and has thus refrained from giving any premature policy pivots. MPC continues to reemphasize the achievement of inflation target on a durable basis and distinctly indicates rate change in the near term is unlikely, he said.
“Overall, a well-anchored policy exercising caution and being data dependent amid the uncertainty in global markets coupled with key domestic events on the anvil,” noted Niraj Kumar
The RBI has announced following measures for deepening financial and monetary markets.
Trading of Sovereign Green Bonds in International Financial Services Centre (IFSC)
With a view to facilitating wider non-resident participation in Sovereign Green Bonds, a scheme for investment and trading in these Bonds in the GIFT City based International Financial Services Centre (IFSC) will be notified shortly.
RBI Retail Direct Scheme – Introduction of Mobile App
The RBI Retail Direct Scheme was launched in November 2021. It is now proposed to launch a mobile app for accessing the Retail Direct portal. This will be of greater convenience to retail investors and deepen the G-sec market.
Enabling UPI for Cash Deposit Facility Deposit of cash through Cash Deposit Machines (CDMs) is primarily being done through the use of debit cards. Given the experience gained from card-less cash withdrawal using UPI at the ATMs, it is now proposed to also facilitate deposit of cash in CDMs using UPI. This measure will further enhance customer convenience and make the currency handling process at banks more efficient.
UPI Access for Prepaid Payment Instruments (PPIs) through Third Party Apps
At present, UPI payments from Prepaid Payment Instruments (PPIs) can be made only by using the web or mobile app provided by the PPI issuer. It is now proposed to permit the use of third-party UPI apps for making UPI payments from PPI wallets. This will further enhance customer convenience and boost adoption of digital payments for small value transactions.
Distribution of Central Bank Digital Currency (CBDC) through Non-bank Payment System Operators
The CBDC pilots are currently in operation with increasing number of use-cases and participating banks. It is proposed to make CBDC-Retail accessible to a broader segment of users by enabling non-bank payment system operators to offer CBDC wallets. This will also facilitate testing of the resiliency of CBDC platform to handle multi-channel transactions.