Key Points from RBI Monetary Policy: Repo Rate Maintained at 6.5% by RBI MPC


  • October 07, 2023
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    The significant updates from RBI's October 2023 Monetary Policy, covering stable repo rates, inflation targets, growth forecasts, and market reactions. Stay informed about India's economic developments.

The RBI's October 2023 Monetary Policy maintains stability with unchanged repo rates, focusing on inflation control, highlighting potential risks, and affirming India's growth potential despite challenges.

The RBI Monetary Policy Committee has opted to maintain the key policy repo rate at 6.5% for the fourth consecutive meeting. This marks a consistent decision to uphold the existing rate after a 25 basis points increase to 6.50% in February 2023. RBI Governor Shaktikanta Das, in the bi-monthly monetary policy announcement, emphasized the incomplete transmission of the previous 250 basis points repo rate cut. The Real GDP growth projection for FY24 remains steady at 6.5%, with inflation also projected to remain unchanged at 5.4%. Governor Das highlighted the imperative need to prevent food and fuel price shocks. To manage liquidity, RBI may resort to open market operations (OMOs) concerning G-secs, with these operations being conducted through auctions, as stated during the post-Monetary Policy press conference.

RBI Monetary Policy: Highlights of bi-monthly monetary policy announced by RBI Governor Shaktikanta Das on Friday

  • All 6 RBI MPC members unanimously voted to keep repo rate unchangedat 6.5%. This is the fourth meeting on the trot that the MPC decided to maintain the status quo on the repo rate. The MPC last raised this rate from 6.25% to 6.50% at its meeting in February 2023.
  • RBI remains focused on withdrawal of accommodation support growth, tame inflation.
  • Cumulative repo rate hike of 250 bps still working its way through economy.
  • Real GDP growth forecast retained at 6.5% for FY24.
  • Inflation forecast too retained at 5.4% for FY24. Cooling vegetable prices, cut in LPG rates to soften inflation.
  • RBI identifies high inflation as major risk to macroeconomic stability and sustainable growth.
  • India is poised to become new growth engine of world.
  • Limit of gold loan under Bullet Repayment Scheme for UCBs doubled to ₹4 lakh.
  • Payments Infrastructure Development Fund scheme extended by 2 years to December 2025. It will now include beneficiaries of the PM Vishwakarma scheme.
  • RBI has plans to undertake open market operation (OMO) with regard to G-secs to manage liquidity. This will be via auction mode.
  • RBI will introduce the facility for creation of card-on-file tokenisation at the issuer bank level to enhance convenience for cardholders.
  • RBI has allowed NBFCs (middle and base layer entities) to utilise credit risk mitigation tools to offset their exposure with eligible credit risk transfer instruments.
  • Next Monetary Policy Committee (MPC) meeting scheduled for Dec 6-8, 2023.

In its October review, the Reserve Bank of India's Monetary Policy Committee (MPC) unanimously held the policy repo rate steady at 6.5%, maintaining this rate for the fourth consecutive time. Key takeaways from the October 2023 monetary policy announcement include:

1. Repo Rate Stability: Under the guidance of RBI Governor Shaktikanta Das, the MPC decided to keep the policy repo rate at 6.50%. The policy stance remains as "withdrawal of accommodation," with five of the six MPC members supporting this stance.

2. Inflation Target: Inflation remains a focal point, with the target set at 4%, allowing for a range of 2% to 6%. Stricter liquidity control may be implemented in the future to adhere to this target, indicating potential challenges in the liquidity environment.

3. CPI Inflation Projections: The RBI estimated Consumer Price Index (CPI) inflation for the fiscal year 2023-24. No significant changes were observed, suggesting persistent inflationary challenges in the near term.

4. Potential Twist: Open Market Operations (OMO): Governor Das hinted at the possibility of OMO sales to manage liquidity, causing a slight increase in the benchmark 10-year government bond yield. OMO sales could impact investments and add stress to the bond market.

5. Banking and Gold Loan Updates: RBI expressed confidence in the banking sector's resilience and improved asset quality. Additionally, the gold loan limit for Urban Cooperative Banks under the bullet payment scheme was raised to Rs 4 lakh.

6. Key Risks Highlighted: Risks related to food and fuel prices, kharif onion production, demand-supply mismatches, and global factors like El Niño were highlighted, posing challenges to inflation dynamics.

7. India's Growth Outlook: Despite challenges, India's economic growth remains promising. The GDP projection for the current fiscal year is maintained at 6.5%. Governor Das emphasized India's ability to navigate global challenges and solidify its position as a leading global economy.

8. Market Implications: The RBI's decision provided comfort to domestic markets, reflected in the positive market activities. While short-term volatility may arise due to the RBI's cautious stance, market attention is expected to shift to India Inc's Q2 earnings and international indicators such as the US dollar's performance and US bond yields, influencing future market trends.


RBI Monetary Policy Live updates:

RBI doubles gold loan limit under bullet repayment scheme

The Reserve Bank of India has increased the existing limit for gold loans under the Bullet Repayment Scheme to ₹4 lakh from ₹2 lakh in respect of Urban Co-operative Banks who have met the overall target and sub-targets under Priority Sector Lending as of March-end. RBI permitted bullet repayment of gold loans up to ₹1 lakh to start with (in 2007), which was increased later (in 2014) to ₹2 lakh, with the repayment being restricted to 12 months.

RBI to introduce card-on-file tokenisation facility at issuer bank level, says Governor

RBI Governor Shaktikanta Das has said it is desirable that banks having surplus funds explore lending opportunities in the interbank call money market, rather than parking funds in SDF (standing deposit facility) at relatively less attractive rates. Das underscored that elevated levels of MSF (marginal standing facility) borrowings amidst substantial funds parked under the SDF is symptomatic of skewed liquidity distribution in the banking system.

RBI extends payments infrastructure scheme by 2 years till Dec 2025, expands scope

RBI has extended the Payments Infrastructure Development Fund (PIDF) scheme by another two years till December 31, 2025. It will now include beneficiaries of the PM Vishwakarma scheme. “The decision to expand the targeted beneficiaries under the PIDF scheme will provide a fillip to the Reserve Bank’s efforts towards promoting digital transactions at the grassroots level,” it said. 

RBI to introduce card-on-file tokenisation facility at issuer bank level

The RBI will introduce the facility for creation of card-on-file tokenisation at the issuer bank level to enhance convenience for cardholders in getting tokens created and linking them to their existing accounts with e-commerce applications.

“Given the growing acceptance and benefits of tokenisation of card data, it is now proposed to introduce Card-on-File Tokenisation (CoFT) creation facilities directly at the issuer bank level,” Governor Shaktikanta Das said.

RBI permits middle, base layer NBFCs to use credit risk mitigation tools

RBI has allowed NBFCs classified as middle and base layer entities, to utilise credit risk mitigation tools to offset their exposure with eligible credit risk transfer instruments.

The step has been taken to harmonise norms across NBFCs; currently, upper layer NBFCS under the Large Exposures Framework, are permitted to use Credit Risk Mitigation (CRM) instruments to reduce their exposure to a counterparty.

“With a view to harmonise credit concentration norms among NBFCs, it has been decided to permit NBFCs in the Middle and Base Layers also to use CRM instruments to reduce their counterparty exposure under the credit concentration norms,” Governor Shaktikanta Das said in his statement on Friday.

Don’t have specific level of exchange rate, objective only to manage volatility, says Das

Objective of withdrawal of Rs 2k notes largely met, says Das

Rs 2000 notes can be sent to RBI issue offices across 19 states after tomorrow. This can also be done through Post Office, he added.

Not approved Slice-NE SFB merger, have only given no objection certificate. It will be a long drawn process, says DG Rajewshwar Rao

We would not like to micro manage liquidity unnecessarily, says Das: It is up to the banks to take cues and manage their liquidity according to their requirements, the Governor added.

Co-op banks are given enough time for revival before licences are cancelled, says Das. Banks are far more sensitive with regard to risk management, says Das: Overall the governance standards of banks have improved, he added.

We don’t see any major worries as far as government finances are concerned, says Das. 87% of Rs 3.43 lakh cr of Rs 2,000 notes returned since May has come as deposits in banks; Rs 12,000 cr of notes yet to come back, he added.

We will examine if banks, NBFCs dont use internal controls, says Deputy Governor Swaminathan- Intention is that banks, NBFCs strengthen internal risk processes and grow their portfolio sensibly, he added.

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