Key highlights of the RBI monetary policy

30 Sept 2022 , 12:44 PM

RBI Governor:

• 2 shocks have impacted global markets, now we are facing the 3^rd shock
• RBI raises REPO Rate by 50 bps to 5.9% from 5.4%
• SDF rate adjusts to 5.65%, Previously 5.15%
• MSF rate at 6.15%, Previously 5.65%
• Bank rates adjusts to 6.15% from 5.65%
• RBI to remain focused on “withdrawal of accommodation” stance while supporting growth

 
On Indian economy:
 

• Economic activity remains stable
• RBI sees inflation elevated at 6% in 2H FY23
• Real GDP growth 13.5%, above pre-pandemic levels
• RBI retains India’s FY23 GDP growth at 7.2%. GDP Growth forecast for FY24 is 6.7%
• India’s debt to GDP, net international investment position to GDP ratio and debt service ratio declined, imparts greater resilience from external shocks
• Bank credit growth has accelerated to 14% against 7.9% a year ago

 
On GDP growth:

• RBI lowers India’s FY23 Real GDP growth from 7.2% to 7%. Q2 at 6.3%, Q3 is project to be at 4.6%, Q4 at 4.6% while Q1 FY24 real GDP Growth is projected to be at 7.3%.

 
On Inflation:

• RBI’s CPI inflation forecasted retained at 6.7% for FY23. Inflation for Q2 is projected at 7.1%, Q3 at 6.5%, Q4 is project to be at 5.8% with risk evenly balanced.
• CPI remains elevated and above the upper tolerance band target. Recent correction in commodities including crude oil prices, if sustained, can ease pressure.

 
On Currency:

• RBI remains watchful and focussed on maintaining stability of Indian Rupee.
• US dollar appreciated by 14.5%, the INR depreciated in an orderly manner by 7.4%. INR fared much better compared to advanced currencies and its peers.
• INR has fared much better than many global currencies.
• RBI has no fixed exchange rate in mind
• Adequacy of forex reserves to be kept in mind

 
On forex reserves:

• Forex Reserve now stands at 537.5 Billion. 66% of the decline in reserve is due to valuation changes arising from appreciating USD and higher US bond Yields.
• In view of moderation in surplus liquidity, RBI decided to merge 28 day VRRR with 14 day VRRR. Only 14 day VRRR auction will be conducted.

 
On CAD and FPI’s:

• Current account deficit for 1^st quarter of FY23 is pegged at 2.8% of GDP with trade deficit at 8.1% of GDP.
• India’s import growth is decelerating compared to export growth.
• FDI Improved to $18.9 Billion in April to July from $13.1 Billion last year.
• FPI has returned with $7.5 Billion after an outflow of 9 consecutive months
• India’s other external ratios have fared better than other developing countries
• External debt to GDP is lowest amongst growing economies
• Expected loss-based approach to be used for Banks
• Framework for securitization for stressed assets to be proposed