RBI MPC Decision LIVE | RBI Governor Shaktikanta Das Makes Monetary Policy Announcement | CNBC TV18

The framework has worked well in maintaining macroeconomic stability even during times of extreme stress. Its embedded flexibility has withstood the pandemic-related stress, the spillovers from the war in Ukraine, and the continuing geopolitical crisis that we face today. Today, while India's growth remains strong, inflation is broadly on a declining trajectory. The strong macroeconomic fundamentals of India have also led to greater confidence in our economic prospects. Let me now turn to the decisions and deliberations of the Monetary Policy Committee meeting, which met on the 6th, 7th, and 8th of August. And it goes as follows: The Monetary Policy Committee met on the 6th, 7th, and 8th of August. After a detailed assessment of the evolving macroeconomic and financial conditions and the overall outlook, it decided by a majority of 4 out of 6 members to keep the policy repo rate unchanged at 6.5%. Consequently, the Standing Deposit Facility rate remains at 6.25%, and the Marginal Standing Facility rate and the Bank Rate at 6.75%. The MPC also decided by a majority of 4 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target while supporting growth. So as you can see, there is a good amount of convergence between market expectations and the RBI's policies. In other words, both market expectations and RBI policies, so far as monetary policy is concerned, are well aligned. I shall now briefly set out the rationale for these decisions. Headline inflation, after remaining steady at 4.8% during April and May this year, increased to 5.1% in June, primarily driven by the food component, which remains stubborn. While the fuel group remained in disinflation, the expected moderation in headline inflation during the second quarter of 2024-25, that is in the second quarter of the current financial year, on account of favorable base effects, is likely to reverse in the third quarter. This is something which I had also explained in the last monetary policy meeting in June: that in the third quarter we have a substantial advantage of the base effect, which may pull down the overall inflation numbers, but going forward, that base effect will wear out. Domestic growth, however, in these circumstances, is holding up well on the back of steady urban consumption and improving rural consumption, coupled with strong investment demand. Amidst this confluence of factors, the MPC judged that it is important for monetary policy to stay the course while maintaining close vigil on the inflation trajectory and the risks thereof. Resilient and steady growth in GDP enables monetary policy to focus unambiguously on inflation. It must continue to be disinflationary and resolute in its commitment to aligning inflation to the target of 4% on a durable basis. Accordingly, the Monetary Policy Committee decided to keep the policy repo rate unchanged at 6.5% in this meeting. The commitment of monetary policy to ensure price stability would strengthen the foundations for a period of sustained growth. Now, this point needs to be appreciated: ensuring price stability eventually results in and supports a period of sustained growth. Without price stability, high growth cannot be sustained. So therefore, especially in a situation where our GDP growth is holding up well, we have decided to focus on inflation and ensure price stability mainly to support growth. In these circumstances, the MPC reiterated the need to continue with the disinflationary stance of withdrawal of accommodation to ensure that inflation progressively aligns to the target while supporting growth. I would now like to provide an assessment of the growth and inflation conditions in India, but before that, let me briefly touch upon the global growth scenario. The global economic outlook exhibits steady though uneven expansion. Manufacturing is indicating a slowdown, while services activity is holding up. Notwithstanding sticky service prices, services inflation is receding grudgingly across major economies. With varying outlook for growth and inflation across countries, monetary policy is showing signs of divergence across jurisdictions. Several central banks are cautiously moving towards policy pivots through forward guidance and rate cuts, while at the same time, there has been tightening by a few central banks also. So on the one hand, you have several central banks which are moving towards a rate cut scenario, but on the other hand, you have a few economies which are in a rate hike mode. Global financial markets are exhibiting volatility. Bond yields and the dollar index have softened since the last meeting of the MPC in June. While the near-term outlook looks positive, there are significant challenges to medium-term global growth outlook: demographic shifts, climate change, geopolitical tensions and fragmentation, rising public debt, and new technologies such as artificial intelligence pose new sets of challenges. A coherent policy approach in which monetary policy is complemented by other policies to manage the policy trade-offs will be crucial to deal with such multiple challenges. Let me now turn to domestic growth. Domestic economic activity continues to be resilient. On the supply side, steady progress in the southwest monsoon, higher cumulative kharif sowing, and improving reservoir levels augur very well for the kharif output. The likelihood of La Niña conditions developing during the second half of the monsoon season is likely to have a bearing on agricultural production in the current financial year. Manufacturing activity continues to gain ground on the back of improving domestic demand. The Index of Industrial Production (IIP) growth accelerated in May this year. The Purchasing Managers' Index (PMI) for manufacturing at 58.1 in July remained elevated. The services sector maintained buoyancy, as evidenced by the available high-frequency indicators. Now, when I say high-frequency indicators, I have given a lot of details in the footnote of my statement, which, as you would know, will get uploaded immediately. My statement is over. In fact, for almost all of the statements which I am making, there is a lot of backup data which we have given in the footnotes. So in the interest of time, I'm not reading out that data, but it is there in the footnote. So when the statement is uploaded, I would encourage you to please have a look at it. Similarly, PMI Services stood strong at 60.3 in July and is above 60 for seven consecutive months, indicating robust expansion of services. On the demand side, household consumption is supporting a turnaround in rural demand and steady discretionary spending in urban areas. Fixed investment activity remains buoyant amid the government's continued thrust on capex and other policy support from the government. Private corporate investment is gaining steam on the back of expansion in bank credit. Merchandise exports expanded in June, although at a slower pace. Expansion in non-oil, non-gold imports accelerated, reflecting resilience in domestic demand. Services exports recorded double-digit growth in May this year before moderating in June. Looking ahead, improved agricultural activity brightens the prospects of rural consumption, while sustained buoyancy in services activity is expected to support urban consumption. The healthy balance sheets of banks and corporates, the thrust on capex by the government, and visible signs of a pickup in private investment would drive investment activity in the current year. Improving prospects of global trade are expected to aid external demand. In fact, so far as external demand and improving volume of global trade are concerned, all the international agencies have projected good growth in global trade versus the numbers that we saw last year, and the numbers are given in the footnote. The spillovers from protracted geopolitical tensions, volatility in international financial markets, and geoeconomic fragmentation, however, pose risks on the downside. Taking all these factors into consideration, real GDP growth for 2024-25, that is for the current year, is projected at 7.2%, with Q1 at 7.1%, Q2 at 7.2%, Q3 at 7.3%, and Q4 at 7.2%. Real GDP growth for Q1 of 2025-26, and this is something which we are giving for the first time, is projected at 7.2%. The risks are evenly balanced. Now, it may be noticed that we have slightly moderated the growth projection for the first quarter of the current financial year in relation to the projection which we gave in the previous MPC in June. This is primarily due to updated information on certain high-frequency indicators which show lower than anticipated corporate profitability, central government and general government expenditure, and core industries output. Let me now turn to inflation. Headline inflation edged up to 5.1% in June 2024 due to higher than expected food inflation. Fuel remained in deflation for the 10th consecutive month. Core inflation moderated to a historic low in the months of May and June. Food inflation, which has a weight of around 46% in the CPI basket, contributed to more than 75% of headline inflation in May and June. Vegetable prices increased sharply and contributed to about 35% of inflation in June. High inflation pressures persisted across other major food items also, details of which are given in the footnote. On the other hand, the softening in core inflation continues to be broad-based, with core services inflation touching a new low in the current CPI series during the month of May and June 2024. The high food price momentum is likely to have continued in the month of July also. Large favorable base effects, as I said earlier, may however push headline inflation downwards in July. The impact of the revision in milk prices and mobile tariffs also needs to be carefully monitored. A degree of relief in food inflation is expected from the pickup in the southwest monsoon and the healthy progress in kharif sowing. Buffer stocks of cereals continue to be above the norms. Global food prices showed signs of easing in the month of July after registering an increase since March 2024. Assuming a normal monsoon and taking into account the 4.9% inflation print which has already come out so far as Q1 is concerned, CPI inflation for the current financial year, that is 2024-25, is projected at 4.5%, with Q2 at 4.4%, Q3 at 4.7%, and Q4 at 4.3%. CPI inflation for the first quarter of next financial year, that is Q1 2025-26, is projected at 4.4%. The risks are evenly balanced. Now, I have given a brief analysis of the growth scenario and also the inflation scenario so far as the Indian economy is concerned. Now the question arises: what do these inflation and growth conditions mean so far as monetary policy is concerned? Let me try and answer. As stated earlier, continuing food price shocks slowed the process of disinflation in Q1 of 2024-25. There is also considerable divergence between headline and core inflation. This has brought to the fore the issue of how much importance should the MPC give to food inflation. Let me dwell upon this in some detail. First and foremost is the fact that our target is the headline inflation, where food inflation has a weight of about 46%. With this high share of food in the consumption basket, food inflation pressures cannot be ignored. Further, the public at large understands inflation more in terms of food inflation than the other components of headline inflation. Therefore, we cannot and should not become complacent merely because core inflation has fallen considerably. Second, and equally important, is the reality that high food inflation adversely affects household inflation expectations, which have a significant impact on the future trajectory of inflation. Household inflation expectations, after witnessing a moderating trend between May 2022 and September 2023, have edged up on the back of high food inflation since November 2023. Persistently high food inflation and unanchored inflation expectations, if they materialize, could lead to spillovers to core inflation through a pickup in wages on cost of living considerations. This, in turn, could be passed on by firms in the form of higher prices for services as well as goods, especially in a scenario of strong aggregate demand. Third, these behavioral changes can then result in overall inflation becoming sticky even after food inflation recedes. The MPC, to summarize what these points which I was mentioning about the importance of food inflation and how persistent high food inflation can spill over to core and to the headline, let me just summarize this part by saying that the MPC may look through high food inflation if it is transitory, but in an environment of persisting high food inflation as we are experiencing now, the MPC cannot afford to do so. It has to remain vigilant to prevent spillovers or second-round effects from persistent food inflation and preserve the gains made so far in monetary policy credibility. Now overall, as I have said in my statement and as the numbers would speak, the overall inflation trajectory has been moderating, and we do expect it to moderate, but the pace of moderation has been uneven and slow. So therefore, we need to be watchful to ensure that we move closer to 4% and the CPI inflation gets aligned to the 4% target on a durable basis. That indeed would be the best contribution which monetary policy can make to support economic growth in the country. Liquidity and financial market conditions: this is what I would now like to focus on. System liquidity transited from deficit in June to surplus conditions in July. In tune with changing liquidity conditions, the Reserve Bank conducted two-way operations under the LAF to ensure that the interbank overnight rate remained closely aligned to the policy rate. Mirroring the liquidity dynamics, the Weighted Average Call Rate (WACR) on an average remained close to the middle of the LAF corridor. Across the term money market segment, the yields on certificates of deposit and 3-month treasury bills (T-bills) eased, while the yields on commercial papers remained stable. The 10-year G-sec yield softened in June, July, and in August so far. The term premium has remained steady in recent months. Transmission in the credit market remains ongoing. Going forward, the Reserve Bank will continue to be nimble and flexible in its liquidity management operations, keeping in view the evolving liquidity conditions, to ensure that money market interest rates evolve in an orderly manner. During 2024-25, up to August 7, the Indian rupee remained largely range-bound. The lower volatility of the Indian rupee bears testimony to India's strong economic and financial stability and an improving external outlook. In the last few days, global financial markets have seen turmoil on concerns of growth slowdown in a major economy, a flare-up in geopolitical tensions in the Middle East, and the unwinding of carry trade. These developments have implications for emerging market economies. In this context, it would be important for market participants to keep in mind the strength of India's macroeconomic fundamentals, which remain robust. India has built strong buffers that impart resilience to the domestic economy from such global spillovers. The Reserve Bank remains committed to ensuring the orderly evolution of financial markets in its regulatory domain. Let me turn now to financial stability. The Indian financial system remains resilient and is gaining strength from the broader macroeconomic stability. Its well-capitalized, unclogged balance sheet is reflective of higher risk absorption capacity. The NBFC sector and the urban cooperative banks also continue to show improvements. Even in such stable financial sector conditions, the emphasis cannot shift away from proactive identification of potential risks and challenges, if any. In this context, there are four issues which I would like to highlight. First, it is observed that alternative investment avenues are becoming more attractive to retail customers, and banks are facing challenges on the funding front, with bank deposits trailing loan growth. As a result, banks are taking greater recourse to short-term non-retail deposits and other instruments of liability to meet the incremental credit demand. This, as I have emphasized elsewhere, may potentially expose the banking system to structural liquidity issues. Banks may therefore focus more on mobilization of household financial savings through innovative products and service offerings and by leveraging fully on their vast branch network. That is the first point which I wanted to highlight in the context of the financial sector. You see, as I mentioned a little while ago, the overall financial sector continues to be healthy and stable. As the regulator of certain segments of the financial sector, it's our responsibility to point out the possible or the potential areas where risks may come up, and it's our responsibility to suggest to the banks, to the NBFCs, and other financial institutions to be extra careful and to keep extra vigil on certain aspects which are not a problem at the moment but, if unattended, can become a problem at a later stage. But so far as the current scenario is concerned and so far as the overall financial sector outlook is concerned, I would like to again reiterate and reemphasize that India's financial sector remains stable and healthy. Now, in this context, the second point which I would like to mention is that the sectors in which preemptive regulatory measures were announced by the Reserve Bank in November last year have shown moderation in credit growth. However, certain segments of personal loans continue to witness high growth. Excess leverage through retail loans, mostly for consumption purposes, needs careful monitoring from a macroprudential point of view. It calls for careful assessment and calibration of underwriting standards, as may be required, as well as post-sanction monitoring of such loans. Most of the banks are doing it, but we need to constantly reemphasize this point. The third issue that is attracting our attention is home equity loans or top-up housing loans, as they are called in India, which have been growing at a brisk pace. Banks and NBFCs have also been offering top-up loans on other collateralized loans like gold loans. It is noticed that the regulatory prescriptions relating to loan-to-value (LTV) ratio, risk weights, and monitoring of end-use of funds are not being strictly adhered to by certain entities. I repeat, certain entities. Such practices may lead to loan funds being deployed in unproductive segments or for speculative purposes. Banks and NBFCs would therefore be well advised to review such practices and take necessary remedial action. Fourth, recently there was an unprecedented outage globally which affected businesses in many countries. The outage demonstrated how a minor technical change, if it goes awry, can wreak havoc on a global scale. It also showed the fast-growing dependence on big tech and third-party technology solution providers. In this background, it is necessary that banks and financial institutions build appropriate risk management frameworks in their IT, cybersecurity, and third-party outsourcing arrangements to maintain operational resilience. The Reserve Bank has time and again emphasized the importance of robust business continuity plans (BCP) to deal with such incidents and situations. Now, I would like to focus on the external sector. India's current account deficit moderated to 0.7% of GDP in 2023-24 from 2% of GDP in 2022-23, due to a lower trade deficit and robust services and remittances receipts. In the first quarter of this year, that is in Q1 of 2024-25, the merchandise trade deficit widened as imports grew faster than exports. However, buoyant services exports and strong remittance receipts are expected to keep the current account deficit within sustainable levels in Q1 of 2024-25. We expect the current account deficit to remain eminently manageable during the current financial year. On the external financing side, foreign portfolio investors (FPIs) turned net buyers in the domestic market from June 2024, with net inflows of USD 9.7 billion during June-August (till August 6), after witnessing outflows of USD 4.2 billion in April and May. Foreign direct investment (FDI) flows picked up in 2024-25, as gross FDI rose by more than 20% during April and May 2024, while net FDI flows doubled during this period compared to the corresponding period of the previous year. External commercial borrowings moderated during April-June in the current financial year, while non-resident deposits recorded higher net inflows during April-May compared to the previous year. India's foreign exchange reserves, this is something worth noting, reached a historical high of USD 675 billion as of August 2nd, 2024. Overall, India's external sector remains resilient as key indicators continue to improve. We remain confident of meeting our external financing requirements confidently. Now, there are certain additional measures, there are five of them, and I would like to announce them quickly. First relates to the creation of a public repository of digital lending apps. The Reserve Bank has taken several measures for the orderly development of the digital lending ecosystem in India. As a further measure in this direction and to address the problems arising from unauthorized digital lending apps, the Reserve Bank proposes to create a public repository of digital lending apps deployed by the regulated entities. The regulated entities of RBI will report and update information about their digital lending apps, that is, about the digital lending apps whose services they are availing, in this repository. This measure will help consumers to identify the unauthorized lending apps. The next announcement relates to the frequency of reporting of credit information to Credit Information Companies (CICs). The availability of accurate credit information is vital both for lenders and borrowers. At present, lenders are required to report credit information to CICs on a monthly basis or at such shorter intervals as may be agreed between the lenders and the CICs. It is proposed to increase the frequency of reporting of credit information to the CICs to a fortnightly basis, or at shorter intervals as may be agreed between the lenders and the CICs. Consequently, borrowers will benefit from faster updation of their credit information, especially when they repay their loans. The lenders, on their part, will be able to make better risk assessment of the borrowers. The next announcement relates to enhancing the transaction limit for tax payments through UPI. Currently, the transaction limit for UPI is rupees 1 lakh, except for certain categories of payments which have higher transaction limits. It has now been decided to enhance the limit for tax payments through UPI from rupees 1 lakh to rupees 5 lakh per transaction. This will further ease payments by consumers through the UPI. The next announcement relates to the introduction of delegated payments through the UPI. It is proposed to introduce a facility of delegated payments in the UPI. This would enable an individual, that is a primary user, to allow another individual, namely a secondary user, to make UPI transactions up to a limit, up to a limit to be set by the primary user, from the primary user's bank account, without the need for the secondary user to have a separate bank account linked to UPI. This will further deepen the reach and usage of digital payments, in particular the UPI. The next announcement, and the last announcement, which is very important, is continuous clearing of checks. This is something which will have wide-ranging impact, and it is a step towards having greater ease of doing business for individuals as well as for entities. At present, check clearing through the Check Truncation System (CTS) operates on a batch processing mode and has a clearing cycle of up to two working days. It is proposed to reduce the clearing cycle by introducing continuous clearing with on-realization settlement in the Check Truncation System. This means that checks will be cleared within a few hours on the day of presentation itself. This will speed up check payments and benefit both the payer and the payee. Now, let me try and conclude. I have provided a broad analysis of the inflation situation, the growth-inflation dynamics. Then I highlighted on the financial sector, I highlighted on the external sector, and I also made certain announcements. And I now proceed to conclude. As I said, inflation, I just repeat it for the sake of putting things in perspective: headline inflation is moderating, but the pace is uneven and slow. Therefore, we need to be watchful, and we are watchful of the inflation scenario. We are also watchful of the growth trajectory, and both of them appear to be moving in a very balanced manner. The financial sector remains stable, our external sector also remains stable. We have built up substantial buffers which make India much more resilient than what it was years ago. Now, on the current monetary policy setting, inflation and growth are evolving in a balanced manner, and overall macroeconomic conditions are stable. Growth remains resilient, inflation has been trending downward, and we have made progress in achieving price stability, but we have more distance to cover. The progress towards our goal of price stability has been uneven due to large and persistent supply-side shocks, especially in food items. We therefore need to remain vigilant to ensure that inflation moves sustainably towards the target while supporting growth. This approach would be net positive for sustained high growth. We recognize the challenges along the way, but we have to be patient to finish the job at hand. In the current context, the following words of Mahatma Gandhi are highly relevant, and I quote: 'The slightest error of judgment, I repeat, the slightest error of judgment, a hasty action or a hasty word may put back the hands of the clock of progress. Policies have therefore to be cautiously evolved.' Thank you. Namaskar.