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No Surprises

Written by - Fisdom Research

February 8, 2024 3 minutes

RBI Monetary Policy Committee Meeting Update

Executive Summary

Monetary Policy Committee

  • Rates and stance maintained. No change.
  • Focus remains on containing inflation while balancing growth.
  • CPI inflation is projected at 5.4% for 2023-24, with risks evenly balanced across quarters.
  • Core inflation remained subdued; manufacturing firms expect softening in commodity prices.
  • Real GDP growth for 2023-24 is projected at 7.3%, and 7.0% for 2024-25 with risks evenly balanced across quarters.

Fisdom Research Commentary

  • Announcements broadly in line with expectations.
  • Yields on papers with 5 to 7 years effective residual maturity appear lucrative
  • Selective exposure to high-quality, sub-AAA-rated papers should help boost overall portfolio returns.

Key Announcements

The Monetary Policy Committee (MPC) met on February 08, 2024, and made the following decisions based on their assessment of the current and evolving macroeconomic situation:

  • The policy repo rate under the liquidity adjustment facility (LAF) will remain unchanged at 6.50%.
  • The standing deposit facility (SDF) rate will also remain at 6.25%
  • The marginal standing facility (MSF) rate and the Bank Rate will be maintained at 6.75%

The MPC will gradually withdraw accommodation to ensure inflation meets the medium-term target. The objective is to achieve a consumer price index (CPI) inflation rate of 4% within a band of +/- 2% while supporting economic growth.

MPC MembersDecisions
Dr. Shashanka Bhide, Dr. Ashima Goyal, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta DasPolicy repo rate to be maintained at 6.50%.
Dr. Shashanka Bhide, Dr. Ashima Goyal, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta DasFocus on withdrawal of accommodation.
Prof. Jayanth R. VarmaReduce the policy repo rate by 25 basis points.

Inflation Projection

 Assumptions and Projections for CPI Inflation
PeriodPrevious MPC EstimatesCurrent MPC EstimatesChange
Fiscal Year 2023-245.40%5.40%Unchanged
Quarter4 (Q4) FY23-245.20%5.00%Revised lower
Quarter1 (Q1) FY24-255.20%5.00%Revised lower
Quarter2 (Q2) FY24-254.00%4.00%Unchanged
Quarter3 (Q3) FY24-254.70%4.60%Revised lower
Quarter4 (Q4) FY24-254.70% 
Fiscal Year 2024-254.50% 

Fisdom Research Commentary

  • Inflation plays a critical role in shaping monetary policy decisions and overall economic stability. Currently, easing inflationary pressures provide global central banks with the opportunity to maintain existing policy measures. Expectations of inflation nearing target rates signify a potentially positive development, aligning with central banks’ objectives.
  • Several factors influence the trajectory of inflation. Evolving food inflation outlook, coupled with uncertainties arising from possible adverse weather events, contribute to fluctuations in inflation rates. Additionally, core inflation remains subdued due to the continued transmission of monetary policy actions and stance. However, the volatility of crude oil prices poses a notable risk to inflation dynamics.
  • Looking ahead, various factors suggest a favorable environment for reducing inflationary pressures. Anticipated softening in input costs and selling prices among manufacturing firms in Q4:2023-24 may deflate inflationary pressures. Moreover, global central banks’ policies, aimed at maintaining stability and stimulating economic growth, are conducive to moderating inflation rates.

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