Alleviating the concerns that the RBI might take a hawkish stand to tame the inflation, the Monetary Policy Committee (MPC) of the RBI has kept the repo rate unchanged at 6.5 per cent in its August 2023 meeting.
The Standing Deposit Facility (SDF) rate has also been kept unchanged at 6.25 per cent.
The Marginal Standing Facility (MSF) rate and Bank rate have been kept at 6.75 per cent.
However, keeping in view the rising inflation and its deleterious effects, 5 out of 6 members of the MPC concurred upon the need to move away from the accommodative stance.
Elucidating upon the rationale for this decision, the RBI Governor, Shri Shaktikanta Das said that there’s a need to keep an eye on the El-Nino phenomenon that might affect global food prices in future.
On the risk posed by the global economy, he mentioned the weak external demand with the WTO projecting the World Merchandise Trade Volume growth to deaccelerate from 2.7 per cent in 2022 to 1.7 per cent in 2023.
Inflation still a worry.
Although the Headline inflation has eased to 4.6% in Quarter 1 of Fiscal year 2023-24, it is projected to increase substantially due to rising vegetable prices and pulses. The risks posed by the development of the El Nino phenomenon along with geo-political tensions continue to linger, which could push the inflation rates higher.
However, on the positive side, Core Inflation, which is considered sticky inflation and is calculated without taking into consideration the food and fuel prices has eased by more than 100 bps from its recent peak.
GDP Growth for FY23-24
The RBI has projected Real GDP growth of 6.5 per cent for the fiscal year 2023-24 with the Aggregate Demand of the domestic economy showing buoyancy.
While the Merchandise trade deficit has contracted in the Q1 of 2023-24, the overall Current Account Deficit (CAD) was reckoned at 2 per cent of the GDP in 2022-23 as compared to 1.2 per cent in 2021-22.
The RBI however considers the CAD to be manageable with the remittances and export of services cushioning the deficit.
The Net Foreign Direct Investment (FDI) flows to India have reduced to 5.5 billion US dollars in April-May 2023 as compared to 10.6 billion US dollars last year, reflecting the global slowdown.
However, the rupee has remained relatively stable due to timely actions by the RBI in the forex market, supported by its foreign exchange reserve that has crossed 600 billion US dollars.
