RBI Policy 2024: The Reserve Bank of India (RBI) on Thursday kept the repo rate unchanged at 6.5% and maintained an accommodative stance, in line with market expectations. The repo rate is the rate at which the RBI lends money to commercial banks.
RBI MPC Meeting decision and rationale
The decision was taken by the six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das, who said that the MPC remained resolute on containing inflation at a target of 6.5%, with a tolerance band of 2% on either side.
This is the sixth consecutive unchanged decision and comes after the Interim Budget was announced on February 1, 2024, which projected a fiscal deficit of 6.8% of GDP for the next financial year, higher than the earlier estimate of 5.5%.
Shaktikanta Das said that the MPC recognised the need to support the nascent economic recovery amid the uncertainty caused by the COVID-19 pandemic and its variants. He said that the RBI would continue to provide ample liquidity to the system and ensure smooth transmission of monetary policy.
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RBI’s measures and announcements
In RBI MPC Meeting also said that the RBI would conduct open market operations (OMOs) in state development loans (SDLs) to improve the liquidity and market efficiency of state government securities. He added that the RBI would also extend the on-tap targeted long-term repo operations (TLTRO) scheme for specific sectors till September 30, 2024.
The RBI policy also announced several other measures to enhance the functioning of the financial markets and the banking sector, such as:
- Allowing retail investors to directly access the government securities market, both primary and secondary, through the RBI’s online platform.
- Relaxing the norms for external commercial borrowings (ECBs) by reducing the minimum average maturity period from three years to one year for ECBs up to $50 million per borrower per financial year.
- Extending the deadline for banks to implement the Basel III capital framework by one year to March 31, 2025, in view of the COVID-19 situation.
- Setting up an expert committee to review the existing guidelines on ownership and corporate structure of private sector banks.
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RBI’s projections and outlook
The RBI revised its growth projection for the current financial year to 10.5%, from the earlier estimate of 10.1%, citing the positive impact of the vaccination drive, the Union Budget and the normalisation of economic activity. However, it also cautioned that the recent surge in COVID-19 cases in some states posed a downside risk to the outlook.
The RBI policy also revised its inflation projection for the fourth quarter of the current financial year to 5.2%, from the earlier estimate of 5.8%, citing the easing of supply-side pressures and the moderation in food prices. However, it also warned that the rising global commodity prices, especially crude oil, could exert upward pressure on inflation in the coming months.
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Market reaction and Expert opinion
The RBI’s decision to keep the policy rates unchanged was widely expected by analysts and market participants, who said that the central bank was likely to maintain a status quo until there was more clarity on the growth and inflation trajectory.
The RBI has reaffirmed its commitment to support the economic recovery while keeping inflation under control. The accommodative stance and the assurance of ample liquidity will help in sustaining the growth momentum and easing the financial stress in the system.
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The RBI has also signalled its willingness to use unconventional tools like OMOs in SDLs and TLTROs to address the specific needs of various segments of the market,” said Rajeev Jain, chief economist at XYZ Bank.
The stock market and the rupee reacted positively to the RBI policy announcement, as the Sensex rose by 0.8% and the rupee appreciated by 0.2% against the US dollar. The bond market, however, witnessed some selling pressure, as the yield on the 10-year government bond increased by 0.1% to 6.2%.
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