The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) met on October 4-5, 2023, to assess the current macroeconomic situation and the outlook for inflation and growth. The MPC unanimously decided to keep the repo rate, the central bank’s benchmark interest rate, unchanged at 6.5%. The MPC also maintained its accommodative monetary policy stance, with a focus on the withdrawal of accommodation.
MPC’s Assessment of the Macroeconomic Situation
The MPC noted that the Indian economy continues to recover from the COVID-19 pandemic, with GDP growth projected at 7.4% in 2023-24. However, the MPC also noted that the global economic outlook remains uncertain, with downside risks emanating from the ongoing war in Ukraine and the tightening of monetary policy by major central banks.
The MPC also noted that inflation remains elevated, with the CPI inflation rate averaging 6.3% in the first half of 2023-24. The MPC attributed the high inflation to a combination of factors, including supply disruptions, higher input costs, and the pass-through of past fuel price increases.
MPC’s Policy Decision
In light of the above assessment, the MPC decided to keep the repo rate unchanged at 6.5%. The MPC also maintained its accommodative monetary policy stance, with a focus on the withdrawal of accommodation. This means that the RBI will continue to gradually withdraw the liquidity support that it has provided to the economy during the pandemic.
MPC’s Outlook for Inflation and Growth
The MPC projected that CPI inflation will average 5.4% in 2023-24, with risks evenly balanced. The MPC also projected that GDP growth will moderate to 7.4% in 2023-24, from 7.8% in 2022-23.
MPC’s Policy Guidance
The MPC stated that it will continue to monitor the macroeconomic situation closely and take necessary actions to ensure that inflation remains within the target range of 2% to 6%. The MPC also stated that it will support the economic recovery while ensuring financial stability.
Impact of RBI’s Monetary Policy Decision
The RBI’s decision to keep the repo rate unchanged is likely to be positive for borrowers, as it will keep lending rates stable. However, the RBI’s focus on withdrawing accommodation could lead to higher interest rates in the future.
The RBI’s monetary policy decision is also likely to have an impact on the stock market. A dovish monetary policy stance is generally positive for stocks, while a hawkish stance is generally negative for stocks. The RBI’s decision to keep the repo rate unchanged and maintain its accommodative stance is likely to be positive for stocks in the short term.
Conclusion
The RBI’s Monetary Policy Committee has kept the repo rate unchanged at 6.5% in its fourth bi-monthly monetary policy review of the financial year 2023-24. The MPC maintained that its focus would be on the withdrawal of its accommodative monetary policy stance to ensure that inflation progressively aligns with the target while supporting growth.
The RBI’s policy decision is likely to have a positive impact on borrowers and the stock market in the short term. However, the RBI’s focus on withdrawing accommodation could lead to higher interest rates in the future.
