RBI Monetary Policy Highlights: 10 key points mentioned by governor Shaktikanta Das

Reserve Bank of India governor Shaktikanta Das announced a 50-basis-point hike in the repo rate — along the expected lines — on Friday, September 30, following a three-day meeting of the central bank's Monetary Policy Committee (MPC). He said more hikes were coming in December.

The repo rate is the key interest rate at which the central bank lends short-term funds to commercial banks. With this, the RBI has raised the repo rate by 190 basis points in four instalments since May as central banks scramble to fight red-hot inflation.

Shaktikanta Das announced a hike of 50 basis points in the repo rate. The repo rate now stands at 5.9 percent. "I have confidence in dealing with the new storm we are presented with... In the last 2.5 years, the world has witnessed two major shocks: COVID and the Ukraine conflict," he said.

The RBI governor said, "persistence of high inflation necessitates further calibrated withdrawal of accommodative measures", as the MPC voted 5:1 to continue with its stance. MPC member Jayanth Varma voted against the stance of "withdrawal of accommodation".

The SDF (Standing Deposit Facility) has been adjusted to 5.65 percent, up from 5.15 percent. SDF is a collateral-free liquidity absorption mechanism that aims to absorb liquidity from the banking system into the RBI.

The MSF (marginal standing facility) and bank rate have been adjusted to 6.15 percent from 5.65 and 5.65 percent earlier, respectively. The MSF is a window for banks to borrow from the RBI in an emergency when inter-bank liquidity dries up completely.

While the central bank maintained its retail inflation forecast for the year ending March 2023, it lowered the real GDP growth rate forecast for FY23 by 20 basis points to 7 percent from 7.2 percent. "Real GDP growth is lower than our expectations," said Das. The first quarter of FY24 GDP estimate has been pegged at  7.2 percent.

The central bank maintained its estimate for consumer inflation in the country at 6.7 percent for the year ending March 2023. Inflation continues to remain persistently high, the governor said. The Q1FY24 CPI estimate has been pegged at at 5 percent.

According to Das, there had been about a 67 percent decline in reserve during the current financial year due to the appreciating dollar and higher US bond yields. India’s forex reserves now stand at $537.5 billion as of September 23.

The governor said that the central bank has decided to merge 28-day variable rate reverse repo (VRRR) with 14-day VRRR. "Only 14-day VRRR auctions will be conducted from now on," he said while making the monetary policy announcements.

Das said payment aggregators play an important role in the payments ecosystem and hence were brought under regulations in March 2020. But they have applied to online aggregators till now. "Keeping in view the similar nature of activities undertaken by online and offline aggregators, it is proposed to apply the current regulations to offline players as well," he said.

He also said keeping in view the need to promote the spread of digital banking in rural areas, the criteria for regional rural banks to be eligible to provide internet banking were being rationalised, and guidelines would be issued separately.