The Reserve Bank of India (RBI) Monetary Policy Committee Meeting (MPC) has decided to keep the repo rates unchanged at 6.5% on Thursday.
The six-member MPC decided by a majority of 5:1 to focus on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.
Standing Deposit Facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
Shaktikanta Das in his speech said the headline CPI inflation picked up from 4.3 per cent in May to 4.8 per cent in June, driven largely by food group dynamics on the back of higher prices of vegetables, eggs, meat, fish, cereals, pulses and spices.
Fuel inflation softened during May-June, primarily reflecting the fall in kerosene prices. Core inflation (i.e., CPI excluding food and fuel) was steady in June.
Bank credit grew by 14.7 per cent y-o-y as on July 28, 2023 as compared with 15.4 per cent on May 19, 2023. India’s foreign exchange reserves stood at US$ 601.5 billion as on August 4, 2023,” he highlighted.
CPI inflation and GDP growth projection
The CPI inflation is projected at 5.4 per cent for 2023-24, with Q2 at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent, with risks evenly balanced. CPI inflation for Q1:2024- 25 is projected at 5.2 per cent.
While the real GDP growth for 2023-24 is projected at 6.5 per cent with Q1 at 8.0 per cent; Q2 at 6.5 per cent; Q3 at 6.0 per cent; and Q4 at 5.7 per cent, with risks broadly balanced. Real GDP growth for Q1:2024-25 is projected at 6.6 per cent.
Spike in vegetable prices to put pressure on headline inflation trajectory
Governor highlighted that going forward, the spike in vegetable prices, led by tomatoes, would exert sizable upside pressures on the near-term headline inflation trajectory. This jump is, however, likely to correct with fresh market arrivals.
There has been significant improvement in the progress of the monsoon and kharif sowing in July; however, the impact of the uneven rainfall distribution warrants careful monitoring. Crude oil prices have firmed up amidst production cuts. Manufacturing, services and infrastructure firms polled in the Reserve Bank’s enterprise surveys expect input costs to ease but output prices to harden.
