MPC unanimously decided to keep the policy rate unchanged at 6.50 per cent for the second time. The RBI Governor Shaktikanta Das on Thursday also added that the MSF rate and bank rate will also be unchanged at 6.75 per cent. SDF rate will continue to be at 6.25 per cent.
The rate increase cycle was paused in April after six consecutive rate hikes aggregating to 250 basis points since May 2022.
The MPC meeting took place against the backdrop of consumer price-based (CPI) inflation declining to a 18-month low of 4.7 per cent in April. The Reserve Bank governor recently indicated that the May print would be lower than the April numbers. The CPI for May is scheduled to be announced on June 12.
Inflation
RBI Governor Das also said that the headline inflation is expected to remain above 4 per cent through the financial year 2024 and the projected inflation for financial year 2024 is just above 5 per cent. The inflation projection for financial year 2024 has been lowered to 5.1 per cent from 5.2 per cent.
He said retail inflation has been below the upper band of 6 per cent for the last two years.
CPI
The CPI for March-April has eased and moved into the tolerance band. The CPI Inflation forecast for the first quarter of this financial year is at 4.6 per cent against the earlier 5.1 per cent. The government has mandated RBI to ensure CPI inflation at 4 per cent with a margin of 2 per cent on either side.
Withdrawal of the accommodation stance
The MPC voted in 5:1 majority to maintain the withdrawal of the accommodation stance.
GDP
The RBI governor also said the Q4 GDP growth was aided by fixed investments and higher exports, but the FY24 GDP growth projection will continue at 6.50 per cent. The real GDP growth for the first quarter of FY24 is at 8 per cent, for the second quarter at 6.5 per cent, the third quarter at 6 per cent and for the fourth quarter at 5.7 per cent.
Liquidity
Talking about liquidity, the RBI Governor said, "Liquidity could increase as more Rs 2,000 notes get deposited in banks."
According to the RBI governor demand conditions remain supportive of growth and according to survey points higher investment is expected in financial year 2024.
RBI Governor says, 'Indian economy and financial sector strong and resilient'
Das while delivering the monetary policy speech also added that the Indian economy and financial sector stand out as strong and resilient despite the global situation. He reiterated the point that the financial stability concerns persist in advanced economies and the labour market in many countries continue to remain tight.
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Parry Singh, Founder and CEO of Red Fort Capital said, with the base effect stabilizing, non-banking financial companies (NBFCs) are expected to see growth in corporate loan segments. The next two quarters may see a rebound in demand for credit from NBFCs, and the benefits of this can be passed on to borrowers. This is a positive step with a long-term view of promoting the growth of the micro, small, and medium enterprise (MSME) segment and ensuring easier access to formal credit at favourable rates.
With inflation stabilizing and declining, credit demand is expected to pick up, especially in the real estate sector from both retail and businesses. Stabilization of interest rates will be critical and highlights the government's long-term vision of a stable business environment with opportunities for value creation through formal credit, he added.
