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Informist, Friday, Dec. 6, 2024

MUMBAI - Following are the highlights of the statement made by Reserve Bank of India Governor Shaktikanta Das on Friday after the fifth bi-monthly meeting of the central bank's Monetary Policy Committee:

KEY TAKEAWAYS

* Repo rate left unchanged at 6.50%

* Cuts CRR to 4.00% of NDTL in 2 equal tranches
* Cuts CRR by 25 bps each of NDTL in fortnight starting Dec 14, Dec 28

* CRR cut to release INR 1.16 tln of liquidity
* Cut in CRR consistent with neutral policy stance
* MSF and Bank rates remain unchanged at 6.75%, SDF rate at 6.25%
* MPC voted by 4 votes to 2 to leave repo rate unchanged at 6.50%

* MPC members Kumar, Singh voted for 25-bps repo rate cut 

* Status quo at this MPC meet appropriate, essential
* MPC voted unanimously to maintain neutral policy stance
* Neutral stance provides flexibility for apt action later
* Monetary policy important because it affects lives of people

* Central banks constantly adapting to new uncertain landscape

* MPC remains committed to restore inflation-growth balance

* Recent GDP, CPI prints an aberration

* Near-term inflation, growth outlooks turned adverse
* Price stability is essential for sustained growth

* See CPI falling to target, growth picking up momentum

* Inflation on upside since Oct policy, while growth moderated
* Slowdown, if it sustains beyond a point, will need policy support

* Prudence, practicality demand we are sensitive to evolving conditions
* Need to wait for, monitor incoming data

* Created system that supports stability, resilience, growth
* Central bank's job is anchor of stability, confidence for high growth

* Prudence, practicality, timing of decisions critical
* Minutes of Dec MPC meeting to be released on Dec 20

INFLATION

* Hikes FY25 CPI inflation forecast to 4.8% from 4.5% earlier

* Hikes Oct-Dec CPI inflation forecast to 5.7% from 4.8% earlier
* Hikes Jan-Mar CPI inflation forecast to 4.5% from 4.2% earlier
* Hikes Apr-Jun CPI inflation forecast to 4.6% from 4.3% earlier
* Pegs Jul-Sept 2025 CPI inflation forecast at 4.0%
* Risks to inflation forecasts are evenly balanced
* Headline CPI expected to fall to target as food price shocks wane

* Vegetable prices expected to see seasonal winter correction
* Food inflation pressures likely to linger in Oct-Dec
* Inflation to only begin easing in Jan-Mar
* Price stability important for the people, business stability

* Price stability important for every segment of economy

* Our effort is to follow flexible inflation targeting framework
* Last mile of disinflation turning out to be arduous globally

* High inflation reduces disposable income of consumers
* Inflation to cool down on seasonal harvest

* Only durable price stability can give strong foundation to high growth
* Geopolitical issues risk to inflation

* Financial market volatility, weather shocks risks to inflation

* Increase in Sept, Oct food prices unanticipated

* Record kharif production to help cool prices of rice, tur dal

* Gains so far on bringing inflation down need to be preserved
 

GROWTH

* Cuts FY25 GDP growth forecast to 6.6% from 7.2% earlier
* Cuts Oct-Dec GDP growth forecast to 6.8% from 7.4% earlier
* Cuts Jan-Mar GDP growth forecast to 7.2% from 7.4% earlier
* Cuts Apr-Jun GDP growth forecast to 6.9% from 7.3% earlier
* Pegs FY26 Jul-Sept GDP growth at 7.3%
* Risks to growth forecasts are evenly balanced
* Jul-Sept GDP growth much lower than anticipated
* Jul-Sept GDP growth slowdown due to subdued manufacturing cos' performance
* Jul-Sept GDP growth slowdown due to subdued mining output
* Jul-Sept GDP growth slowdown due to subdued electricity demand
* Growth also very important for every segment of econ

* MPC took note of recent slowdown in growth
* MPC assessed growth to be resilient in Oct-Mar
* Growth outlook needs to be closely monitored
 

MACROECONOMY

* Manufacturing sector to see firming up of input prices
* Weakness in manufacturing sector in Jul-Sept was not broad based

* Slowdown in economic activity bottomed out in Jul-Sept
* Data shows economic activity bounced back since Jul-Sept
* Farm growth supported by healthy kharif output
* Farm growth supported by high reservoir levels
* Mining, electricity sectors to recover after monsoon dip
* Govt capex likely to pick up
* Nov mfg PMI remained elevated, PMI services steady
* Supply chain pressure eased in Oct-Nov
* Services sector continues to grow at strong pace
* Rural demand is trending upwards, urban demand showing some moderation
* Govt consumption improving, invest expected to improve

* See CAD within sustainable levels in FY25
* Robust services exports to keep CAD at sustainable levels
* Net FPI inflows at $9.3 bln so far in FY25
* External sector remains resilient

* Have traversed one of the most difficult periods in India econ
* India econ emerged stronger after period of trials

GLOBAL DEVELOPMENTS

* Global economy showed unusual resilience in 2024
* Since Oct, global financial markets have remained edgy

* Outlook for global growth clouded by protectionist tendencies
* Rising protectionist tendencies may weigh on global growth
* Rising protectionist tendencies may push up global inflation

FINANCIAL MARKETS

* System liquidity may tighten on tax outflows
* To remain nimble in liquidity management operations
* Financial markets remained edgy since Oct MPC meet

* Liquidity in surplus Oct, Nov due to govt spend pickup
* Adequate liquidity in both Oct, Nov
* Transmission of interbank rates to credit market satisfactory
* Two-way liquidity ops have ensured call rate aligned with repo rate
* System liquidity may tighten in coming months

* Volatility, depreciation in rupee less than emerging mkt peers
* Rupee depreciated on strong dollar, FPI outflows
* Our exchange rate policy has remained consistent over the years
* Exchange rate policy consistent, market-determined
* Low rupee volatility, depreciation shows econ strength, stability
* Our FX interventions focus on smoothening volatility, not a rate
* Effort to modernise, deepen FX market have borne fruit
* FX reserves used judiciously to curb rupee volatility
* FX reserves act as shock absorbers
* We combine market movement with prudent intervention
* Health of financial sector one of its best in a long time
* Market discipline, prudent FX intervention ensured macroeconomic stability
* To connect FX retail platform with NPCI's Bharat Connect
* Propose to introduce new benchmark secured overnight rupee rate
* Secured overnight rupee rate to be based on mkt repo, TREPS mkt
 

FINANCIAL SECTOR

* Effort always to resolve financial sector issues non-disruptively

* Imposing business restriction a last resort, for consumer interest

* ECBs saw higher net inflows from year ago

* To up FCNR(B) interest ceilings to attract FX inflows
* To launch new programme "connect to regulate" for feedback
* To add podcasts to RBI's communication toolkit
* To introduce podcast facility for higher communication
* Limit on collateral-free farm loans raised to INR 200,000 per borrower
* To hike limit for collateral-free farm loans
* Small finance banks can now extend pre-sanctioned credit lines via UPI
* Financial sector landscape seeing rapid transformation
* To moot framework for responsible, ethical AI use

* Mule-hunter.AI introduced by RBI to identify mule accounts

End

Compiled by Vinod Bhovad

Filed by Avishek Dutta

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