Check out the key details from the RBI MPC Policy meeting

10 Aug 2023 , 03:31 PM

In its latest monetary policy decision, the Reserve Bank of India (RBI) has chosen to maintain the policy rate unchanged for the third consecutive time, signaling its continued focus on inflation monitoring. The announcement, made by RBI Governor Shaktikanta Das, highlights the central bank's cautious stance as it navigates the delicate balance between stimulating economic growth and taming rising inflationary pressures.

Inflation Outlook and Revised Forecast: Inflation, which had reached a modest 4.3 % in May, experienced an upward trajectory in June. The governor anticipates further surges in inflation for the months of July and August. This surge is primarily attributed to the impact of rising vegetable prices.

The inflation forecast for fiscal year FY24 has been adjusted upwards from 5.1 % to 5.4 %. This revision is attributed to the shocks in vegetable prices, which have played a significant role in shaping the inflation landscape.

Challenges and Vigilance: Governor Das emphasized the importance of closely monitoring weather conditions and food prices. He acknowledged that the global economy is grappling with extreme weather events like El Nino, which can disrupt supply chains and potentially contribute to inflationary pressures.

The Monetary Policy Committee (MPC) reached a decision, with a 5/6 majority, to maintain focus on withdrawing accommodation in a manner that aligns inflation with the set target while still providing support for economic growth.

Economic Resilience and Risks: Governor Das noted that despite inflationary concerns, domestic economic activity continues to display resilience. The recovery in kharif sowing and rural incomes, combined with the buoyancy in services and consumer optimism, is expected to uphold household consumption.

The governor acknowledged several external risks to the economic outlook, including weak global demand, volatility in global financial markets, geopolitical tensions, and geoeconomic fragmentation. These factors collectively pose threats to the stability of the economy.

Inflation Spike and Monsoon Impact: The surge in vegetable prices, led by tomatoes, is expected to exert considerable upward pressure on short-term headline inflation figures. However, Governor Das anticipates that this jump is likely to correct itself as fresh market arrivals contribute to market stability.

The progress of the monsoon and kharif sowing has shown significant improvement, particularly in July. Nonetheless, the uneven distribution of rainfall remains a point of concern and requires diligent monitoring.

Growth Forecast: While the governor did not revise growth forecast numbers, the projection for the GDP growth in the fiscal year 2023-24 remains at 6.5 %. The quarterly growth estimates are as follows: 8.0 % for Q1, 6.5 % for Q2, 6.0 % for Q3, and 5.7 % for Q4. 

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