The Reserve Bank of India (RBI) has maintained its policy stance of 'withdrawal of accommodation' by the majority of 5 out of 6 Monetary Policy Committee (MPC) members and kept the key policy repo rate unchanged at 6.5% following its December meeting. The policy tone was comfortable, but the MPC insisted on keeping an eye on financial stability risk, active liquidity management, and inflation and prepared to take action as needed. This is the fifth meeting on the trot that the MPC has decided to maintain the status quo on the repo rate.
The central bank emphasized India's economic resilience and the fragile global economic environment. The RBI raised its real GDP projections but maintained its CPI estimate for the current financial year (FY24).
The RBI raised its real GDP growth projection for FY24 to 7.5% from 6.5% earlier. The revised growth forecast includes a quarterly break-up, with the October-December 2023 growth forecast raised to 6.5%, the January-March (4th Quarter) 2024 growth forecast raised to 6.0%, the April-June 2024 growth forecast raised to 6.7%, the July-September 2024 GDP growth forecast pegged at 6.4%, and the October-December 2024 GDP growth forecast pegged at 6.4%. CPI inflation is projected at 5.4 percent for 2023–24, with Q3 at 5.6 percent and Q4 at 5.2 percent. CPI inflation for Q1:2024–25 is projected at 5.2 percent; Q2 at 4.0 percent; and Q3 at 4.7 percent.
The RBI Governor also highlighted the potential for private consumption to gain support from gradual improvement in rural demand, strengthening of manufacturing activity, and continued buoyancy in services. However, he warned that geopolitical turmoil, volatility in global financial markets, and growing geo-economic fragmentation pose risks to the outlook.
The Reserve Bank of India (RBI) has decided to allow reversal of liquidity facilities under both the Special Drawing Fund (SDF) and the Medium-Term Fund (MSF) even on weekends, expected to facilitate better fund management. This will be reviewed in six months or earlier.
At its last policy review in October, the central bank was of the view that it should consider open market operation (OMO)-based bond sales to keep liquidity tight, but these sales have not happened. Rather, liquidity has been in deficit through November, with overnight rates hovering around the MSF. The RBI will continue its pause, letting rate hikes work their way through the system.
The Reserve Bank of India has increased the UPI limit to Rs 1 lakh per transaction for hospitals and educational institutions and has exempted the requirement of Additional Factor of Authentication (AFA) for transactions up to Rs. 1 lakh for certain categories of payments. The Reserve Bank of India has also proposed to establish a framework for web aggregation of loan products for enhanced customer centricity and transparency in digital lending.