Reserve Bank of India Monetary Policy Review

  

 During the announcement of the monetary policy, RBI Governor Shaktikanta Das stated that India's potential growth is driven by structural factors. The RBI Monetary Policy Committee (MPC) has decided to maintain the status quo and keep the repo rate unchanged at 6.5%. The monetary policy stance also remains the same with a focus on the withdrawal of accommodation. Although growth is accelerating and outpacing most analysts' forecasts, the MPC continues to prioritize the withdrawal of its accommodative stance. However, the uncertainty in food prices is still affecting the headline inflation. Governor Das also mentioned that the momentum in domestic activities continues to be strong.

The retail inflation for the current financial year has reduced after reaching a peak of 7.44 percent in July 2023. However, it is still high and was 5.69 percent in December 2023, which is within the Reserve Bank's comfort zone of 4-6 percent. Governor of the Reserve Bank of India, Shaktikanta Das, stated that they project CPI inflation at 5.4% for the current quarter, with a further projection of 5% for the fourth quarter. Assuming a typical monsoon for the upcoming year, CPI inflation is predicted to be 4.5% for the fiscal year 2024–2025, with Q1 at 5%, Q2 at 4%, Q3 at 4.6%, and Q4 at 4.7%.

The government has mandated the central bank to ensure that the retail inflation based on the Consumer Price Index (CPI) remains at 4% with a margin of 2% on either side. The inflation trajectory going forward would be shaped by the outlook on food inflation, about which there is considerable uncertainty. Adverse weather events remain the primary risk with implications for the Rabi crop. Increasing geopolitical tensions are also leading to supply chain disruptions and price volatility in key commodities, especially crude oil.

On the positive side, the progress in Rabi sowing has been satisfactory, which bodes well for the season. Prices of some commodities like onions and tomatoes, which were troublesome, are registering seasonal price correction. Taking into account these factors, CPI inflation, which is consumer price headline inflation, is projected at 5.4% for the current year, that is 2023-2024," explained Das.

The Monetary Policy Committee (MPC) is responsible for deciding the policy repo rate to achieve the inflation target, keeping in mind the objective of growth. The Reserve Bank of India Governor also highlighted that given developments in markets and technology, they plan to review the regulatory framework for electronic trading platforms. Furthermore, they aim to streamline the process of on-boarding of Aadhaar Enabled Payment System (AePS) service providers and introduce additional fraud risk management measures.