RBI monetary policy meeting: As was largely anticipated, the Reserve Bank of India (RBI) held the repo rate constant at its fourth straight policy meeting on Friday. The central bank kept the repo rate unchanged at 6.50% and stance of ‘withdrawal of accommodation.
RBI monetary policy meeting was a three-day meeting of RBI Governor Shaktikanta Das-led Monetary Policy Committee (MPC), which began on Wednesday, October 4.
In order to ensure that inflation gradually aligns with the committee’s target while continuing to support economic growth, the RBI also reaffirmed its policy position of “withdrawal of accommodation.” The position was supported by five out of the six committee members.
According to Das, the full effects of previous rate hikes have yet to be felt throughout the economy.
RBI MPC meeting – CPI Inflation
Retail inflation for the year as a whole dipped to 6.83% in August from a 15-month high of 7.44% in July, but it still remained significantly above than the central bank’s comfort zone of 2%-6%.
“CPI headline inflation surged by 2.6 percentage points to 7.4 per cent in July due to spike in vegetable prices, before moderating somewhat in August to 6.8 per cent. Fuel inflation edged up to 4.3 per cent in August. Core inflation (i.e., CPI excluding food and fuel) softened to 4.9 per cent during July-August 2023,” said the Monetary Policy Statement.
As unpredictable weather has hampered the production of essentials like vegetables, milk, and cereals, sharp price increases in food have been the primary cause.
The impact of sporadic rainfall and fluctuating global food and energy prices, according to Das, “remains clouded, despite declining core inflation being a silver lining.”
Inflation is expected to average 5.4% in the fiscal year 2023–2024, according to the central bank’s prediction, which remained unchanged. The target for economic growth for the year remained at 6.5% as well.
Following the decision by the central bank and the remarks regarding inflation, the benchmark 2033 bond yield was trading slightly higher at 7.2240%. Before the announcement, it was at 7.2197 percent.
Outlook
On the strength of the recent drop in LPG costs and the correction in vegetable prices, Das indicated that the outlook for inflation in the short term will likely improve. The future trajectory will be influenced by a variety of variables, including the amount of pulses sowed the level of reservoirs, the presence of El Nio, and the volatility of the global food and energy markets.
According to the Reserve Bank’s enterprise surveys, manufacturing firms expect higher input cost pressures but marginally lower growth in selling prices in Q3 compared to the previous quarter. Services and infrastructure firms expect a moderation in growth of input costs and selling prices. Taking into account these factors, CPI inflation is projected at 5.4% for 2023-24, with Q2 at 6.4%, Q3 at 5.6% and Q4 at 5.2%, with risks evenly balanced. CPI inflation for Q1:2024-25 is projected at 5.2%, mentioned the Monetary Policy Statement release.
(more to come)
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Updated: 06 Oct 2023, 10:44 AM IST