On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today (October 6, 2023) decided to:

• Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent.

The standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.

• The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to 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 per cent within a band of +/- 2 per cent, while supporting growth.

The main considerations underlying the decision are set out in the statement below.

Assessment

Global Economy

2. Global growth is losing momentum. Inflation is easing gradually but remains well above target in major economies. Concerns about higher for longer rates are imparting volatility to global financial markets. Sovereign bond yields have hardened, the US dollar has appreciated, and equity markets have corrected. Emerging market economies (EMEs) are experiencing currency depreciation and volatile capital flows.

Domestic Economy

3. Real gross domestic product (GDP) posted a growth of 7.8 per cent year-on-year (y-o-y) in Q1:2023-24 (April-June), underpinned by private consumption and investment demand.

4. South-west monsoon rainfall recovered during September and ended 6 per cent below the long period average. The acreage under kharif crops was 0.2 per cent higher than a year ago. The index of industrial production rose by 5.7 per cent in July; core industries output expanded by 12.1 per cent in August. Purchasing managers’ indices (PMIs) and other high frequency indicators of the services sector exhibited healthy expansion in August-September.

5. On the demand front, urban consumption is buoyant while rural demand is showing signs of revival. Investment activity is benefitting from public sector capex. Strong growth is seen in steel consumption, cement production as well as in imports and production of capital goods. Merchandise exports and non-oil non-gold imports remained in contraction in August, although the pace of decline eased. Services exports improved in August.

6. CPI headline inflation surged by 2.6 percentage points to 7.4 per cent in July due to spike in vegetable prices, before moderating somewhat in August to 6.8 per cent. Fuel inflation edged up to 4.3 per cent in August. Core inflation (i.e., CPI excluding food and fuel) softened to 4.9 per cent during July-August 2023.

7. As on September 22, 2023, money supply (M3) expanded by 10.8 per cent (y-o-y) and bank credit grew by 15.3 per cent. India’s foreign exchange reserves stood at US$ 586.9 billion as on September 29, 2023.

Kautilya in his Arthashastra more than two thousand years ago, had said: “stability enables a state not only to share its wealth equitably but also augment it”.1 These words are relevant even today. In fact, they have eternal validity. Macroeconomic stability and inclusive growth are the fundamental principles underlying a country’s progress. The policy mix that we have pursued during the recent years of multiple and unparalleled shocks has fostered macroeconomic and financial stability. The external sector also remains eminently manageable. The twin balance sheet stress that was encountered a decade ago has now been replaced by a twin balance sheet advantage with healthier balance sheets of both banks and corporates. India is poised to become the new growth engine of the world.

2. The need of the hour is to remain vigilant and not give room to complacency. Lessons from the past one and a half decades and from living through the global financial crisis and the taper tantrum tell us that risks and vulnerabilities can grow even in good times. All stakeholders in the economy, be it lenders, corporates, businesses – small and big – and even policymakers should continue to reinforce their buffers and fundamentals in the fast changing world that we live in. So far as the Reserve Bank is concerned, we have identified high inflation as a major risk to macroeconomic stability and sustainable growth. Accordingly, our monetary policy remains resolutely focused on aligning inflation to the 4 per cent target on a durable basis.

Decisions and Deliberation of the Monetary Policy Committee (MPC)

3. The Monetary Policy Committee (MPC) met on 4th, 5th and 6th October 2023. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, it decided unanimously to keep the policy repo rate unchanged at 6.50 per cent. Consequently, the standing deposit facility (SDF) rate remains at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent. The MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

4. I shall now briefly set out the MPC’s rationale for these decisions on the policy rate and the stance. Headline inflation had surged in July driven by tomato and other vegetable prices. It corrected partly in August and is expected to see further easing in September on the back of moderation in these prices. A silver lining amidst all these is declining core inflation (i.e., CPI excluding food and fuel). The overall inflation outlook, however, is clouded by uncertainties from the fall in kharif sowing for key crops like pulses and oilseeds, low reservoir levels, and volatile global food and energy prices. The MPC observed that the recurring incidence of large and overlapping food price shocks can impart generalisation and persistence to headline inflation. Economic activity, on the other hand, has remained resilient. Taking into account the evolving inflation-growth dynamics and the cumulative policy repo rate hike of 250 basis points which is still working through the economy, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting. The transmission of the 250 basis points (bps) increase in the policy repo rate to bank lending and deposit rates is still incomplete and hence the MPC decided to remain focused on withdrawal of accommodation.2 The MPC remains highly alert and prepared to undertake timely policy measures, as may be necessary, in order to align inflation to the target and anchor inflation expectations.

On a review of the current and evolving liquidity conditions, it has been decided to conduct a Variable Rate Reverse Repo auction on September 22, 2023, Friday, as under:

Sl. No.Notified Amount
(₹ crore)Tenor
(day)Window TimingDate of Reversal

150,0001410:30 AM to 11:00 AMOctober 06, 2023
(Friday)

2. The operational guidelines for the auction as given in the Reserve Bank’s Press Release 2019-2020/1947 dated February 13, 2020 will remain the same.

Ajit Prasad           
Director (Communications)

Press Release: 2023-2024/960

The Reserve Bank has today released data on Reserve Money for the week ended September 29, 2023 and Money Supply for the fortnight ended September 22, 2023.

Ajit Prasad            
Director (Communications)

Press Release: 2023-2024/1042

Data on sectoral deployment of bank credit for the month of August 20231 collected from 40 select scheduled commercial banks, accounting for about 93 per cent of the total non-food credit deployed by all scheduled commercial banks, are set out in Statements I and II.On a year-on-year (y-o-y) basis, non-food bank credit2 registered a growth of 15.0 per cent in August 20233 as compared with 16.0 per cent a year ago.

The Reserve Bank has today released data on Reserve Money for the week ended September 22, 2023. Ajit Prasad Director (Communications) Press Release: 2023-2024/1002 

The Government of Maharashtra has declared September 29, 2023 as a public holiday under Section 25 of the Negotiable Instruments Act, 1881. The public holiday on September 28, 2023 declared earlier has been cancelled.2. To ensure smooth functioning of the financial markets and non-disruptive settlement of transactions especially in view of the quarter / half year end

Tenor 14-day Notified Amount (in ₹ crore) 50,000 Total amount of offers received (in ₹ crore)5,995 Amount accepted (in ₹ crore) 5,995 Cut off Rate (%) 6.49 Weighted Average Rate (%) 6.49 Partial Acceptance Percentage of offers received at cut off rateNA Ajit Prasad Director (Communications) Press Release: 2023-2024/969

The Reserve Bank has today released data on Money Supply for the fortnight ended September 08, 2023.Ajit Prasad  Director (Communications) Press Release: 2023-2024/958

The Reserve Bank has today released data on Reserve Money for the week ended September 15, 2023.