The central bank of the 5th largest economy of the world has decided to increase the policy repo rate by 35 basis points to 6.25%. Consequently, the standing deposit facility (SDF) rate stands adjusted to 6.00 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 per cent. Delivering the bimonthly Monetary Policy Statement of the RBI through the RBI’s YouTube channel today, the Governor Dr. Shaktikanta Das informed that the Monetary Policy Committee has also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
Explaining the rationale behind the monetary policy stance, the RBI Governor observed that the MPC was of the view that further calibrated monetary policy action is warranted to keep inflation expectations anchored, break core inflation persistence, and contain second-round effects. He asserted that these actions will strengthen the medium-term growth prospects of the Indian economy.
Indian Economy expected to grow at 6.8% in 2022-23
The Governor informed that the economy is projected to grow at 6.8 per cent in the current financial year 2022-23, with Q3 at 4.4 per cent and Q4 at 4.2 per cent. Real GDP growth is projected at 7.1 per cent for Q1:2023-24 and at 5.9 per cent for Q2. The Governor wants us to take note that even after this revision in our growth projection for 2022-23, India will still be among the fastest growing major economies in the world.
As regards inflation, the Governor stated that headline inflation is projected at 6.7 per cent in 2022-23.
The Governor summarized the findings thus. GDP growth in India remains resilient and inflation is expected to moderate; but the battle against inflation is not over.
Story of Indian Rupee one of Resilience and Stability
The Governor spoke of the appreciation of the US dollar this year, which precipitated large scale depreciation of all major global currencies including the Indian rupee (INR). He informed that through this episode of US dollar appreciation, the INR’s movements have been the least disruptive, relative to peers. In fact, the INR has appreciated against all other major currencies except a few, he adds. The Governor notes that the story of the INR has been one of India’s resilience and stability.
The Governor informed that the size of forex reserves is comfortable and has also increased. It has gone up from US$ 524.5 billion on October 21, 2022 to US$ 561.2 billion as on December 2, 2022. He also noted that India’s external debt ratios are low by international standards.
The Governor announced four additional measures.
Banks get additional flexibility in investment management
Banks had been granted a special dispensation of enhanced Held to Maturity (HTM) limit of 22 per cent of Net Demand and Time Liabilities (NDTL), for Statutory Liquidity Ratio (SLR) eligible securities acquired between September 1, 2020 and March 31, 2022, until March 31, 2023. It has now been decided to extend the dispensation of enhanced HTM limit of 23 per cent up to March 31, 2024. Banks will now be allowed to include securities acquired between September 1, 2020 and March 31, 2024 in the enhanced HTM limit. This will further flexibility to banks in managing their investment portfolios.
UPI gets Stronger
The capabilities in UPI will be further enhanced by introducing single-block-and-multiple-debits functionality. This facility will enable a customer to block funds in his/her account for specific purposes, which can be debited whenever needed. This will significantly enhance the ease of making payments for investments in securities including through the Retail Direct platform as well as e-commerce transactions.
Scope of Bharat Bill Payment System (BBPS) gets Wider
The scope of BBPS is being enhanced to include all categories of payments and collections, both recurring and non-recurring, and for all categories of billers (businesses and individuals). This will make the BBPS platform accessible to a wider set of individuals and businesses who can benefit from the transparent payments experience, giving them faster access to funds and improved efficiency.
Hedging of Gold in the International Financial Services Centre (IFSC)
Resident entities in India are currently not permitted to hedge their exposure to gold price risk in overseas markets. With a view to providing greater flexibility to these entities to hedge the price risk of their gold exposures, resident entities will now be permitted to hedge their gold price risk on recognised exchanges in the IFSC. This measure will benefit importers/exporters of gold such as jewellers and industries which use gold as an intermediate or raw material.
“India’s G20 presidency provides us a historic opportunity”
The Governor highlighted the need to work on improving the long-term potential of our country, especially in the areas of green transition, reconfiguration of supply chains and logistics, production-linked incentive schemes, digital banking and financial services, and innovative technologies which he said offer immense opportunities for the Indian economy. He said that India’s G20 presidency provides us a historic opportunity to play a bigger role in the international arena. The theme of our Presidency “Vasudhaiva Kutumbakam” reflects our vision of global cooperation for universal welfare. The Governor said that we must remain optimistic and derive inspiration from the following words of Gandhiji: “Let no one think that it is impossible because it is difficult. It is the highest goal, and it is no wonder that the highest effort should be necessary to attain it.”