RBI Monetary Policy - August 2023

[Meher_Smaran]

In its previous monetary policy meeting the RBI kept interest rates unchanged at 6.5%. With the recent surge in food prices and increase in crude oil prices, will the RBI hike the interest rates again or continue to hold?

Poll

What is your expectation?

• Hike by 25 basis points
• Hike by 50 basis points
• Will keep the interest rates as it is

[Suyash.K]

RBI has a target inflation rate of 4% with a leeway of 2% on either side.

I think the current spike in tomato prices is transitory. The real rates are positive, and I don’t see any reason to hike today. The commentary will be important.

[Prakashsingh]

Concur with Suyash here. But there’s pressure from other central banks due to narrower interest rate differential.

[Prakashsingh]

RBI keeps the rates unchanged. Das sir

[Meher_Smaran]

Everybody were prepared for rate hike - Incremental CRR came out of the syllabus

[Meher_Smaran]

Some highlights from the policy:

On the domestic economy;

“Domestic economic activity is maintaining resilience.”

• As of August 9, rainfall was the long-period average. However, distribution has been uneven.
• Total area sown under Kharif crops was 0.4% higher than a year ago as of August 4, 2023.

IIP and PMI data

• Industrial production (IIP) expanded by 5.2% in May. Core industries output rose by 8.2% in June.
• Composite Purchasing Managers Index (PMI) rose to a 13-year high in July.

Inflation outlook

• RBI revised its inflation forecast for FY24 to 5.4%.

• “The spike in vegetable prices, led by tomatoes, would exert sizeable upside pressures on the near-term headline inflation trajectory.”

• Inflation in Q2 projected at 6.2%, Q3 at 5.7%, and Q4 at 5.2%.

GDP growth projections

Coming to GDP growth, the RBI maintained projections for FY24 at 6.5%. With growth in Q1 at 8%, Q2 at 6.5%, Q3 at 6%, and Q4 at 5.7%.

On the global economy:

• “The global economy is slowing and growth trajectories are diverging across regions amidst moderating but above target inflation, tight financial conditions, simmering geopolitical conflicts, and geoeconomic fragmentation.”

• “For several emerging market economies, weak external demand, elevated debt levels and tight external funding conditions pose risks to their growth prospects.”

Here’s the full statement :

https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56175

[viswaram]

GDP = Repo Rate = 6.5%

Next exam, will use this logic to guess the new Repo Rate