07-Dec-2023
2 mins read
The RBI’s Governor, Shaktikanta Das, is set to reveal the fifth monetary policy for the financial year 2023-24 on Friday, December 8, following a comprehensive two-day review. This assessment aims to gauge how global challenges are affecting India’s key economic markers, like inflation trends and the growth of the gross domestic product (GDP).
Prudential Measures Expectations
The impending RBI monetary policy announcement is creating a buzz among the market enthusiasts, who are eagerly awaiting potential surprises from the Governor’s announcements.
Market speculations surround the RBI’s potential adjustments in response to identified excesses, mirroring previous interventions in sectors like unsecured loans. An inclination toward standardising risk weights is expected, with a watchful eye on high lending rates from specific microfinance lenders.
Highlights from Previous Policy Announcements
In the fourth bi-monthly monetary policy, the RBI Governor Shaktikanta Das affirmed the unchanged policy repo rate at 6.50%. The GDP growth forecast for FY24 stood at 6.5%, maintaining stability across quarters, while the CPI inflation forecast for Q1FY25 remained unchanged at 6.6%.
Monetary Policy Committee (MPC) Dynamics and Role
The MPC, an empowered six-member committee, operates under Section 45ZB of the amended RBI Act, 1934. Its primary role involves setting the policy repo rate, a pivotal tool for achieving the RBI’s inflation target. Meeting at least four times annually, the MPC necessitates a quorum of four members for decision-making, each member holding a vote.
Monetary Policy Instruments
The RBI deploys a suite of direct and indirect instruments for monetary policy implementation, ensuring economic stability and effective liquidity management. These include the repo rate, standing deposit facility (SDF) rate, marginal standing facility (MSF) rate, liquidity adjustment facility (LAF), bank rate, cash reserve ratio (CRR), statutory liquidity ratio (SLR), open market operations (OMOs), among others.
Critical Indicators for December 2023 Monetary Policy
- Inflation: October saw India’s consumer price index-based inflation ease to a four-month low, hovering at 4.87%, edging closer to the RBI’s target of 4%. The central bank underscored the persistence of inflation above the tolerance band, requiring an actively disinflationary approach.
- Growth: India’s economy showcased robust growth at 7.6% during the July-September quarter of 2023-24, maintaining its position as the world’s fastest-growing major economy. The GDP growth surpassed estimates, aligning with RBI’s projections.
- Liquidity: The focus on liquidity management and credit growth remains paramount. Elevated bank credit growth, particularly in personal loans at around 30% annually, has drawn attention. Governor Das had previously flagged this rapid growth, advising enhanced surveillance mechanisms for banks and non-banking financial companies (NBFCs).
Final Thoughts
The impending RBI monetary policy announcement carries weighty expectations within various economic spheres. While interest rates and overarching strategies are projected to remain consistent, nuanced adjustments in prudential measures, along with insights into inflation and growth projections, may significantly impact market sentiments and financial strategies.