Reserve Bank of India Keeps Policy Rates Unchanged Amidst Global Economic Uncertainties
December 08, 2023
In a press release today, the Reserve Bank of India (RBI)
announced its decision to keep the policy repo rate unchanged at 6.50 per cent,
following a meeting of the Monetary Policy Committee (MPC) held on 6th, 7th,
and 8th December 2023.
Governor's Statement:
As the year 2023 approaches its end, global economic
conditions continue to face unprecedented volatility, earning the period from
2020 to 2023 the moniker of the 'Great Volatility.' The global economy is
experiencing a slowdown, with signs of unevenness across different geographies
and sectors. The Emerging Market Economies (EMEs) have shown resilience, and
while headline inflation has receded, it remains above target in several
countries.
Indian Economy Resilient:
Contrary to the global trend, the Indian economy is
demonstrating resilience and momentum. Real gross domestic product (GDP) growth
for Q2 of the current financial year has exceeded expectations, with strong
fundamentals such as healthier balance sheets for banks and corporates, fiscal
consolidation on track, manageable external balance, and robust forex reserves.
Monetary Policy Decisions:
After a thorough assessment of macroeconomic and financial
developments, the MPC unanimously decided to maintain the policy repo rate at
6.50 per cent. The standing deposit facility (SDF) rate remains at 6.25 per
cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75
per cent. The MPC also expressed its focus on the withdrawal of accommodation
to align inflation progressively to the target while supporting growth.
Inflation and Growth Outlook:
Headline inflation moderated to 4.9 per cent in October,
down from 7.4 per cent in July, primarily due to easing in all components of
the Consumer Price Index (CPI). However, risks to food inflation persist, and
the MPC remains vigilant for potential second-round effects. The Indian economy
is showing robust growth in Q2, and the MPC projects a real GDP growth of 7.0
per cent for 2023-24.
Global and Domestic Economic Scenario:
The global economy remains fragile, with decelerating world
trade and various risks such as elevated debt levels, geopolitical tensions,
and extreme weather conditions. However, India's economic activity is buoyant,
driven by strong domestic demand and government consumption. Key indicators
such as GST collections, manufacturing growth, and services sector expansion
remain positive.
Financial Stability and External Sector:
The Governor emphasized the importance of financial
stability as a public good and outlined the Reserve Bank's efforts to safeguard
the financial sector. On the external front, merchandise exports and imports
have returned to the expansionary zone, and India's external vulnerability
indicators exhibit higher resilience compared to emerging market peers.
Additional Measures:
The RBI announced several additional measures, including a
review of the regulatory framework for hedging of foreign exchange risks, a
unified regulatory framework for connected lending, a regulatory framework for
web-aggregation of loan products, and the establishment of a Fintech
Repository.
Conclusion:
Governor's concluding remarks emphasized the need for
cautious and thoughtful actions in the face of evolving global uncertainties.
While acknowledging India's current advantageous position, the Governor
highlighted the importance of vigilance and readiness to adapt to changing
economic landscapes.
As the Indian economy strides towards a brighter future, the
Governor quoted Mahatma Gandhi, stating, "Progress is absolutely assured
whenever there is … an unalterable determination." The RBI remains
committed to navigating the economic challenges ahead and maintaining stability
in the financial markets.
Educational Disclaimer -
Please note that the information provided in this article is intended solely for educational purposes and should not be construed as financial or investment advice. Any decisions made based on this information are made at your own risk, and we cannot be held responsible for any gains or losses that may result.
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