In this article, we’ll discuss the key highlights and analysis of the Reserve Bank of India’s (RBI) Monetary Policy Statement for 2023-24, based on the Monetary Policy Committee (MPC) meetings held on April 3, 5 and 6, 2023.
MPC Decision on Interest Rates
The MPC decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%. The standing deposit facility (SDF) rate remains at 6.25%, while the marginal standing facility (MSF) rate and the Bank Rate stay at 6.75%.
These decisions aim to align inflation with the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting economic growth. The MPC plans to concentrate on withdrawing accommodation to ensure this alignment.
Global and Domestic Economic Assessments
Global Economy
Global economic activity has been resilient despite high inflation levels, banking system turmoil in some advanced economies, tight financial conditions, and ongoing geopolitical conflicts. Financial stability concerns have led to risk aversion, flights to safety, and increased financial market volatility.
Domestic Economy
India’s real GDP growth for 2022-23 is estimated at 7.0%. Private consumption and public investment were the primary drivers of growth. Economic activity remained robust in Q4, with a 6.2% expected increase in rabi foodgrains production for 2022-23. Industrial production and services sector indicators also showed healthy growth.
Inflation and Outlook
Headline CPI inflation increased to 6.4% in February 2023. Core inflation (CPI excluding food and fuel) remained elevated, staying above 6% in January-February. The CPI inflation for 2023-24 is projected at 5.2%, with risks evenly balanced.
GDP Growth Projections
Real GDP growth for 2023-24 is projected at 6.5%, with Q1 at 7.8%, Q2 at 6.2%, Q3 at 6.1%, and Q4 at 5.9%. The risks are also evenly balanced. Factors such as a good rabi crop, buoyancy in contact-intensive services, capital expenditure, and credit growth are expected to support growth.
MPC’s Commitment to Price Stability
The MPC emphasized the importance of aligning inflation with the target and maintaining low and stable prices for sustained resilience in domestic economic activity. Although the policy rate has been increased by a cumulative 250 basis points since May 2022, the MPC remains vigilant and prepared to act if necessary.
All MPC members unanimously voted to keep the policy repo rate unchanged at 6.50%. However, Prof Jayanth R Varma expressed reservations on the resolution’s focus on withdrawal of accommodation to ensure that inflation progressively aligns with the target while supporting growth.
In conclusion, the RBI’s Monetary Policy Statement for 2023-24 maintains a cautious stance, focusing on balancing inflation targets with supporting economic growth. The MPC will continue monitoring the evolving inflation and growth outlook, adjusting policy as needed in future meetings.