RBI MPC Meeting 2024: What’s On the RBI’s Radar?
It’s a splendid morning as the RBI MPC meeting minutes have been presented to us live and we can rest assured that everything’s going like clockwork in the Indian economy.
However, several important factors have been discussed at the meeting, so without further adieu, let’s dive in and find out all the relevant details.
Monetary Policy Report:
The RBI Governor Shaktikanta Das began the session by giving the viewers a glimpse of the long and gruelling path the RBI took to get to where it is in the past decade.
He began the speech by mentioning the inception of the RBI, the wars, droughts that ensued and the fall of the Bretton Woods system. He further went on to talk about the several market reforms taken and also about handling crisis scenarios like the global financial crises and the COVID pandemic. He began the wonderful session by stating
“The RBI was at the forefront combining development in all roles”
A powerful statement indeed for any speech.
He further went on to state that RBI is well positioned to take on holistic views and also to take in the best interest of the economy.
Repo Rate:
The 6.5% repo rate has not changed, according to the RBI MPC. At its first RBI MPC meeting of FY25, the six-member monetary policy committee of the RBI decided to maintain the policy repo rate at 6.50 per cent due to retail inflation continuing to exceed the 4 per cent goal.
Inflation:
inflation was one such aspect that was in focus while watching the RBI MPC speech live.
The RBI Governor Said,
“Growth has successfully continued to sustain its momentum surpassing all projections. The headline inflation has eased to 5.1% in January and February from 5.7% in December. In addition, the core inflation has successfully declined steadily to its lowest level.”
He further added
“ The Monetary Policy Committee is remaining vigilant concerning the risks associated with inflation that has a chance of derailing the path towards disinflation. The policy must continue to be actively disinflationary ensuring that anchoring of inflation expectations and fuller transmission of the past monetary policy actions. The MPC promises to remain firm on aligning inflation towards its set target. “
Furthermore, the outlook for agriculture and rural activity appears bright. The growing rural demand, improving employment conditions and informal sector activity, moderating inflationary pressures and sustained momentum in manufacturing and services sectors should boost private consumption.
In his speech, he further mentioned the CPI inflation projections for FY25.
“The CPI inflation in Q1 has been projected at 4.9%, Q2 at 3.8%, Q3 at 4.6% and Q4 at 4.5%. The inflation has come down significantly but it remains about the 4 % target.
Food inflation has been a constant entity that has exhibited considerable volatility that has been affecting the ongoing disinflation process. “
However, he had a positive note to end this section on as he said
“The strong pace of growth combined with our GDP forecasts for 2024–25 gives us the policy space to focus unwaveringly on price stability.
2 years back, the CPI inflation at this time peaked at 7.8% in April 2022. The elephant in the room was the Inflation but it seems as though it has gone to the forest, never to return soon.
In the interests of the economy, it is important that consumer price inflation remains moderate and remains in line with the target. Until this has been achieved, our task remains, UNFINISHED”
Equity and Foreign Markets:
Talking about the equities markets, the RBI governor Shaktikanta Das said
“The equity market rallied, while bond yields and the US dollar remained volatile.”
Domestic and Global Economy:
He recalls the last monetary policy statement wherein he had expressed concerns about the high levels of public debt in both advanced and emerging market economies. He went on to say that these are dormant risks that could erupt abruptly. The governor said that the emerging market economies with rising levels of public debt would be vulnerable and advanced economies would have necessarily address this challenge.
However, there was a twist in the data. He said
“ In contrast to the global economy, India presents a different picture on account of its fiscal consolidation and fostering of GDP growth. Domestic economic activities continue to expand at a rapid pace which has been supported by fixed investment and improvements in a global environment.
As per the second advanced estimate, the Real GDP growth has been placed at 7.6%, the 3rd successive year at 7% or higher.”
PMI and other factors:
The services PMI remained above 60 in February and March, indicating good growth. Shaktikanta Das continued this during the RBI MPC Meeting and said,
“Flexibility in cement production coupled with strong steel consumption and production and growth in capital goods is good for the investment cycle”.
The flow of resources to the commercial sector was INR 31.2 Lakh crore in FY 24 and this is significantly higher than INR 26.4 Lakh crore in FY 23.
The Real GDP growth for FY25 is seen at 7%. Q1 FY25 growth is projected at 7.1%, Q2 at 6.9%, Q3 and Q4 at 7% each.
RBI and the Beloved Indian Rupee:
The Indian Rupee has been an aspect of pride for the RBI as well as the Indian economy. It has remained largely range bound in Fy24 said the Governor. He further said
“The Rupee has remained largely range bound in FY 24 and has been most stable among major currencies. The Indian rupee exhibited the lowest volatility in 2023–24 and this stability reflects India’s sound macroeconomic fundamentals and financial stability improvements in our external position.”
Banking and Related Regulations:
The Key indicators of the capital and asset quality of commercial banks have continued to be healthy as per the RBI Gov Shaktikanta Das.
He further said during the RBI MPC Meeting
“The financial sector players operate on public funds and choose NBFCs or investors in bonds and other financial instruments and should take this into account.”.
After this stern warning if you may call it he explained that the RBI is engaging with the regulated entities and other stakeholders to simplify the regulations and reduce the compliance burden.
Forex Inflow:
An important aspect of any economy is the foreign inflow of funds.
The RBI Governor in his RBI MPC Meeting speech said
“ India’s FPI flows have seen a significant turnaround on FY 23. The ECBs and the NRI deposits have recorded higher net inflow vis-a-vis previous year.”
The Forex reserves have reached an all-time high of $645.6 billion as of March 29, 2024.”
The RBI governor Shaktikatha Das went on to say that he is confident in meeting external financing requirements with the utmost comfort.
Interesting Additions:
The final session of the RBI MPC meeting is always the most interesting because it reveals interesting details to look forward to in the banking sector.
RBI’s Dedicated Mobile App:
The RBI has proposed to launch a mobile app to access the retail direct portal for the G-Secs.
It will introduce the mobile app to operate in the retail direct portal for retail investors. This has been done to deepen the retail G-sec market.
UPI Marvels:
The RBI is set to facilitate the deposits of cash at CDMs using UPI. RBI will be permitting the use of third-party UPI apps for the making of UPI payments from PPI wallets.
The PPI wallet holders no longer be dependent completely on the PPI issues as any third-party app can be used operating under the UPI. This is set to further enhance customer convenience and also boost the adoption of digital payments for small value.
Small Finance Banks:
As per the newest announcements, SFBs are going to be allowed to use permissible rupee interest rate derivative products.
As at present small finance banks have been permitted to use only interest rate futures for hedging, it has now decided to allow the SFB to utilize permissible rupee interest derivative products.
This is set to allow further flexibility for hedging interest rate risks and also enhancing resilience.
IFSC and the Foreign Angle:
Another interesting facet of foreign policy would be the RBI’s final announcement for this meeting.
The RBI Governor Shaktikanta Das said,
“The foreign investors in IFSC will be permitted to invest in Sovereign Green Bonds.
RBI has decided to allow International Financial Services Center (IFSC) eligible foreign investors to invest in Government Green Bonds (SgrBS) as well.
This has been viewed as a strategy to facilitate wider non-resident participation in SgrBs.
At Present the scenario is that Foreign Portfolio Investors registered with SEBI have been permitted to invest in SgrBs under the different routes available for investment by the FPIs in government securities. “
He finished the RBI MPC meeting by stating
“Government Green Bond Investment and Trading System for IFSC Issued Foreign Investors will be notified separately to the Government and IFSC authorities.”
A Perspective from Commodity Samachar:
Commodity Samachar best and brightest have joined forces to give you the key takeaways of the RBI MPC Meet. Here’s a glimpse of what we’re talking about.
Happy Trading!
Commodity Samachar
Learn and Trade with Ease
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