RBI Monetary Policy Committee (MPC) Meeting Highlights December 2023: Inflation is top priority, loosening of rates is not on the table, says Shaktikanta Das

From being a part of fragile 5 some time back to having GDP growth revised upwards to 7% when global growth has become fragile is the summary of the good work done by the RBI and the government in the most challenging times.

The RBI policy is continuity of the good work done in the past. Inflation within target range, yet the vigil is on. Growth revised upwards. Financial system healthy and pushed to stay ahead of the curve on digitisation. Truly reminding of Glen Maxwell Inning against Afghanistan in the world cup.

On all counts, we found the policy bias to continue to be hawkish, but the extent of this hawkishness appears to have been dialled back, indicating comfort with the current period of high growth and manageable underlying inflation. We think this also signals no pressing need for the RBI to change policy direction, as the economy appears to be in a Goldilocks environment, with the three bears of fragile global demand, tight global monetary conditions, and ongoing supply/commodity price shocks receding to the background.

The continued focus on aligning inflation with the 4% target showcases the importance of maintaining price stability for inclusive growth.

RBI’s vigilance on lending and loan growth is in the right spirit to guide NBFCs to further enhance customer centricity. The RBI has also made the players aware of the need for regulatory framework on web aggregation.

Repository for Fintechs, and a regulatory framework for loan web aggregation and connected lending are progressive steps. It can dispel the dark clouds of suspicion hanging over digital lending in recent times. We see great promise for buoyant economic activity and consequently, growth in commercial and retail credit in the near future.

We have been managing large forex flows in both directions, he added.

Capacity utilisation has reached a threshold at 74%. Many cos in manufacturing are using reserves and surplus for investment. High frequency indicators of investment is showing good growth. Investment cycle should continue into the future, he added.

Citing FADA data, he said that retail sales of 2-wheelers grew 20.7%. FMCG in rural areas grew 6.4% in Q2. There are signs that rural demand is turning around. Demand for MNREGA has declined for the first time in Nov by about 4.6 per cent.

The idea is to ensure safety and security of data, says the central bank.

It is left to the banks on decision to increase savings interest rate, he added.

Unemployment rate has fallen to 6.6%, he added.

The future looks very fickle, shocks can come from any economy and any time. So, not possible in the current situation for any central bank to give forward guidance, he added.

There is confidence in the quality of Indian products, services, he added.

It is not our intention to ration credit. There is adequate headroom for the ‘personal loans’ segment to grow, he added.

There are certain factors that are not in our control such as demand for currency, build up of cash. The need to deploy OMOs have not risen since October, he added.

Assumption of status quo as neutral stance is not correct. Monetary policy continues to be actively disinflationary, the Governor added.

We made efforts to sensitise banks before raising the risk weights, he added.

Took prudential measures to manage lending because markets were not responding. Risk weight measures were not intended to curtail growth, but to mitigate avoidable risk he added.

We have still some way to go to reach our target. We have still some distance to reach 4%. Loosening of rates is not on the table, he added.

CPI for November is expected to be high. MPC will be highly alert to any signs of derailing of ongoing disinflation process, Das added.

The policy outcome is largely neutral for bonds and we see markets to stay range bound amid low year-end liquidity, with ten year yield hovering 7.20-7.30%. However, RBI’s consistent concern on skewness of liquidity distribution in the banking system has now led them to allow reversal of liquidity facility under both SDF and MSF even on weekends.

Overall, the policy tone was comfortable, while MPC still insisting on keeping an eye on inflation and financial stability risk and active liquidity management.

We maintain the RBI will stay vigilant, and it is unlikely to precede the Fed in any policy reversal in CY24.

We believe the RBI is firmly set on the course of policy pause for now, but predict 100 bps of cumulative policy easing starting from August 2024 as inflation moderates and growth headwinds gather.

The MPC has retained focus on 4% inflation being the medium target, with monetary policy actions to ensure disinflationary trends ahead. We continue to expect prolonged pause by the MPC, with liquidity tools being more closely if necessary to manage the policy stance.

The housing market is on a bull run and unchanged home loan rates will only add to the overall positive consumer sentiments. Additionally, given that housing prices have escalated across the top 7 cities in the last one year, at least the unchanged home loan rates will give some relief to the homebuyers. 

We expect the momentum in housing sales to continue in the wake of the unchanged repo rates coupled with the resultant stable home loan rates and positive economic outlook on India.

This will be operationalised by RBI Innovation Hub, he added.

Policymakers must be aware of risks of overtightening policy. We have now reached a stage where every action must be weighed even more carefully. We must be aware of risks from shocks anywhere and anytime, he added.

Such facility will enhance data security and privacy, he added.

The Reserve Bank of India has exempted the requirement of Additional Factor of Authentication (AFA) for transactions up to ₹1 lakh for certain categories of payments. These include subscriptions to mutual funds, payment of insurance premiums, and payments of credit card bills.

Net inflows on account of ECBs and NRI deposits much higher, he added.

We have noticed high utilisation of MSF and SDF by banks. We have decided to allow reversal of liquidity facilities under both SDF and MSF even on weekends. It is expected that this will facilitate better fund management. This will be reviewed in 6 months or earlier, says Das

Real GDP growth for the next year projected at 6.7 per cent in Q1, 6.5 Q2 and 6.4 in Q3, says Shaktikanta Das

RBI Monetary Policy Committee has kept the key policy repo rate unchanged at 6.5% by a unanimous decision. This is the fifth meeting on the trot that the MPC decided to maintain the status quo on the repo rate. The MPC last raised this rate by 25 bps to 6.50% at its meeting in February 2023. 5 out 6 MPC members voted in favour of withdrawal of accommodation, says RBI Governor.

Indian government bond yields are likely to be largely unchanged on Friday in the run-up to the Reserve Bank of India’s (RBI) monetary policy decision, with focus on future guidance.

The 10-year benchmark bond yield is expected to be between 7.22% and 7.25%, till the announcement that starts at 10:00 a.m. IST, after ending the previous session at 7.2528%, a trader with a state-run bank said.

“With no move in rates and stances expected, the whole focus would be on the language used by the central bank officials. If they want to hint at prolonged tightness, they could go for an upward revision in growth as well as inflation predictions,” the trader said.

The central bank will hold the key policy rate at 6.50% for a fifth consecutive meeting, according to a Reuters poll, and traders anticipate a hawkish undertone to the policy guidance.

The preference will be to gradually withdraw incremental liquidity and undertake a targeted approach via macro-prudential measures to check excesses, as demonstrated by the recent move to tighten risk weights on consumer loans, DBS said. (Reuters)

businessline spoke to Anurag Mittal, Head - Fixed Income, UTI AMC on what are the likely policy decisions one can expect at the RBI MPC Meet. Listen in!

India’s growth resilience beat expectations. Developments since the Oct’23 policy meet suggest the domestic economy is going strong. The latest GDP growth (7.6%) exceeded consensus (6.8%) and our expectations (6.9%), primarily driven by investments while consumption growth was tepid. We reckon the coming period will see a reversal in the contributors to growth, from investment to consumption, as competitive populism would shift the focus of government spending from capital to revenue expenditure, while private investments are likely to be subdued ahead of the general elections. 

Global growth slowing; soft landing for the US now a possibility. Heading toward end-2023, global growth is clearly decelerating. Amid such uncertainty, the case for a soft landing for the US has improved, where growth is relatively strong, easing labour markets and core inflation moderating. This has helped yields sliding and DXY easing, leading to FPI flows in Nov’23 turning positive. 

Core inflation well on track; volatile food prices a concern. Headline inflation has been tracking downward, with core inflation in Oct’23 shrinking for the fourth straight month. Active supply-side measures and no change in fuel prices at the pump ensured headline was well in control. Ahead, we think some of this moderation will be un-done with food prices again rising and lower reservoir levels affecting the rabi output in 2024. 

Liquidity in deficit. While the governor at the last meeting highlighted the possibility of OMO sales, liquidity has been in deficit through Nov, with overnight rates hovering around the MSF. 

RBI to continue its pause. Taken together, as inflation is still a concern and growth strong, the RBI will pause, letting rate hikes work their way through the system. With liquidity in deficit, there is no need for OMO sales although the RBI would rely on active liquidity management. We will be watching out for the Governor’s commentary on adjusted risk weights and retail credit portfolio. While we expect no change in the liquidity stance, the commentary is likely to be neutral.

At its last policy review in October, the central bank said it may consider open market operation (OMO) based bond sales to keep liquidity tight but these sales have not happened, per a Reuters reprot.

Any major tweaks in the approach to liquidity could impact bond yields, traders said.

“We do not expect any explicit measure to be announced to tighten financial conditions, but RBI may sound cautious,” said Abhishek Upadhyay, a senior economist at ICICI Securities Primary Dealership.

“The RBI may not signal any discomfort on the current tightness in banking system liquidity. They may continue to keep the optimality of OMO sales open to manage liquidity and financial conditions,” he added.

However, some analysts and market participants are expecting a tweak to its growth estimates after recent strong GDP prints, the report added.

The swap markets are signalling that the Indian central bank will only begin cutting rates in the middle of 2024, at least a quarter after the U.S. Federal Reserve is expected to start loosening policy, per a Reuters report.

“The focus will remain on keeping liquidity conditions tight, to enhance transmission of past rate hikes and prevent generalisation of price pressures,” said Gaura Sen Gupta, an economist with IDFC First Bank.

The Reserve Bank of India is likely to maintain the status quo on the short-term interest rate in its monetary policy review, with inflation staying in comfort zone and economic growth moving at an accelerated pace, opined experts. The RBI has left the repo rate unchanged in its past four bi-monthly monetary policies. The central bank had last increased the repo rate in February to 6.5 per cent, thus ending the interest rate hiking spree which began in May 2022 in the aftermath of Russia-Ukraine war and subsequent disruptions in the global supply chain resulting in high inflation in the country. 

On expectations from the RBI’s monetary policy, Madan Sabnavis, Chief Economist, Bank of Baroda, said the central bank is most likely to maintain the status quo on rates as well as stance this time.

“The high growth witnessed in Q2 in GDP will provide assurance that the economy is on track. The low core inflation numbers in the last few months will provide comfort that there is no need to increase rates even while headline inflation is likely to be volatile in the upward direction,” he said.

“Some direction on liquidity will be useful to the market as the system is in deficit for quite some time,” he said and added there can be some upward revision in the GDP growth numbers though will not be very significant.

Aurodeep Nandi, India economist at Nomura, also expects the MPC to unanimously vote to pause at its December policy meeting. (PTI)

The eight core industries’ output grew 12.1 percent in October 2023, much higher than the 0.7 per cent growth recorded in same month last fiscal.

The government has also now revised upwards the eight core industries output growth for September 2023 to 9.2 percent as against 8.1 percent earlier, official data showed.

Also the August 2023 reading has now been revised up to 12.5 percent from the earlier 14-month high of 12.1 percent projected earlier for that month. July 2023 reading has been revised up to 8.5 percent.

All the eight industries record positive growth in October 2023.

India consolidated its position as the fastest-growing major economy globally as the Government’s Statistics office on Thursday released the Gross Domestic Product (GDP) data for second quarter spanning July to September months of the financial year 2023-24. 

The data showed that Indian economy has grown by 7.6 per cent during Q2 FY24 mainly on account of strong performance by industries. It is much higher than the projection of the Reserve Bank of India’s Monetary Policy Committee (MPC) last month. Economic growth rate based on changes in GDP was 7.8 per cent in April-June quarter (Q1 of FY24) and 6.3 per cent of July period of FY23.

A supportive base and moderation in non-food prices pushed headline retail ​inflation​ based on the Consumer Price Index (CPI) to a four-month low of 4.87 per cent in October. ​It was 5.02 per cent in September​. Incidentally, the June print was also 4.87 per cent.

Core inflation (headline inflation minus inflation of food and fuel) also dropped to 4.23 per cent from 4.52 per cent. 

Swati Arora, an economist with HDFC Bank, said persistence in pulses and cereal inflation is worrisome and poses an upside risk to food prices. “CPI inflation is expected to clock a print above 5 per cent both in November and December and average around 5 per cent in Q4 FY24,” she said.

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said: “We expect the trend of sub-5 per cent headline inflation to remain brief, with most of FY24 ahead likely to remain above 5 per cent.”