The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) has announced to keep the policy rate unchanged at 6.5% for the fifth monetary policy of the financial year 2023-24.
The RBI has left the repo rate unchanged in its past four bi-monthly monetary policies.
“As 2023 comes to an end and the new year is about to begin, the long awaited normality still eludes global economy. Major central banks have kept rates on hold as the financial markets remain volatile. Against this unsettled global environment the Indian economy posts a resilient picture,” the governor said.
He highlighted that the headline inflation has receded from the highs of last year, and remains above target in many countries. Core inflation remains sticky.
The RBI Governor highlighted that the real GDP growth projected at 7% for the current year with 3rd quarter at 6.5% and 4th quarter at 6%.
RBI’s inflation projection
For FY24-25, real GDP growth for Q1 is projected at 6.7%, for Q2 at 6.5% and Q3 at 6.4%, the risks are evenly balanced.
He highlighted that the CPI Inflation for the current year is projected at 5.4% with Q3 at 5.6%, Q4 at 5.2%. For next year, CPI Inflation for Q1 is projected at 5.2%, Q2 at 4% and Q3 at 4.7%.
The October retail inflation was 4.87%, well within the RBI’s comfort range of 4 (+/-2)%, and the GDP numbers were better than expected.
Shaktikanta Das also highlighted that the RBI has noticed simultaneous high utilisation of MSF and SDF by the banks. “We propose to address this situation and decided to allow reversal of liquidity facilities under both SDF and MSF even during weekends and holidays with effect from December 30, 2023.”
“Standing Deposit Facility rate remains at 6.25%; Marginal Standing Facility (MSF) and Bank Rate at 6.75%.”
Additional measures announced
The RBI has announced a framework for connected lending. Governor said the RBI has decided to come up with a unified regulatory framework on connected lending for all regulated entities of the Reserve Bank. This will strengthen the pricing and management of credit by the regulated entities.
A framework for web aggregation of loan products has also been designed to lay down a regulatory framework for web aggregation of loan products. This is expected to result in enhanced customer centricity and transparency in digital lending.
Importantly, the central bank has also announced setting up of a fintech repository. “Financial entities like banks and NBFCs in India are increasingly partnering with FinTechs. For better understanding of developments in the fintech ecosystem and to support this sector, it is proposed to set up a fintech repository, which will be operationalised by the RBIH in April 2024 or earlier. Fintechs will be encouraged to provide relevant info voluntarily to this repository,” he said.
Finance Minister Nirmala Sitharaman on Thursday at the winter session of the Parliament said India was not only the fastest-growing economy in the world but also it had the highest growth rate in the second quarter of the current financial year globally.
Indian economy had grown from the tenth largest in 2014 to the fifth largest economy in 2023. Moreover, India had the most significant growth in the July-September quarter at 7.6%, Sitharaman said in the Parliament.
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