RBI Monetary Policy Update – August 2023

In its meeting held today, the Monetary Policy Committee (MPC) made several key decisions based on its assessment of the current and evolving macroeconomic situation.  

The committee opted to maintain the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%.  

Additionally, the standing deposit facility (SDF) rate remains unchanged at 6.2%, while both the marginal standing facility (MSF) rate and the Bank Rate remained steady at 6.75%. 

The MPC also decided to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth. 

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth. 

In May, the index of industrial production (IIP) experienced a growth of 5.2%, while core industries’ output witnessed an increase of 8.2% in June. Among high-frequency indicators, e-way bills and toll collections displayed robust expansion in June and July, respectively, while rail freight and port traffic rebounded in July following a subdued performance in June. Furthermore, the composite purchasing managers’ index (PMI) reached a 13-year high in July. 

Headline CPI inflation accelerated from 4.3% in May to 4.8% in June, mainly propelled by the dynamics within the food group, driven by elevated prices of vegetables, eggs, meat, fish, cereals, pulses, and spices. Fuel inflation, on the other hand, eased during May-June, predominantly due to the decline in kerosene prices. Core inflation, which excludes food and fuel components, remained stable in June. 

The projected CPI inflation for the fiscal year 2023-24 is 5.4%, with estimates of 6.2% for Q2, 5.7% for Q3, and 5.2% for Q4, all with evenly balanced risks. Additionally, the CPI inflation for the first quarter of 2024-25 is anticipated to be 5.2%. 

The projected real GDP growth for the fiscal year 2023-24 is 6.5%, comprising 8.0% for Q1, 6.5% for Q2, 6.0% for Q3, and 5.7% for Q4, with risks broadly balanced. Additionally, the real GDP growth for the first quarter of 2024-25 is estimated to be 6.6%. 

Shashanka Bhide, Ashima Goyal, Rajiv Ranjan, Michael Debabrata Patra, and Shaktikanta Das voted in favour of maintaining a focus on withdrawing accommodation to ensure a gradual alignment of inflation with the target, all while supporting growth. However, Jayanth Varma expressed reservations regarding this aspect of the resolution. 

Furthermore, all the members of the MPC, including Shashanka Bhide, Ashima Goyal, Jayanth Varma, Rajiv Ranjan, Michael Debabrata Patra, and Shaktikanta Das, unanimously voted to maintain the policy repo rate at 6.50%.