RBI MPC Meeting LIVE Updates: The monetary policy committee of the Reserve Bank of India (RBI) in its October review meeting unanimously decided to keep the policy repo rate unchanged at 6.5 per cent, thus maintaining status quo for the fourth straight occasions.
Shaktikanta Das emphasised that the central bank is concerned and it has identified high inflation as a major risk to the economy.
Das added that RBI is committed to aligning India’s headline inflation at 4 per cent level.
RBI maintained the stance – “withdrawal of accommodation”. Das noted that 5 out of the 6 MPC members are for remaining focused on “withdrawal of accommodation” in monetary policy stance.
In response to the Russia-Ukraine conflict, the Reserve Bank initiated a gradual policy rate increase starting in May 2022, ultimately reaching 6.5 percent by February of this year. Over the past three bi-monthly monetary policy reviews, the rate has remained unchanged. The Monetary Policy Committee (MPC), led by RBI Governor, commenced discussions on October 4.
The government has tasked the Reserve Bank with the responsibility of ensuring that Consumer Price Index (CPI)-based retail inflation remains within 4 percent, with a margin of 2 percent on either side. In August, retail inflation stood at 6.83 percent, exceeding the RBI’s comfort level.
During an unscheduled meeting in May 2022, the MPC raised the policy rate by 40 basis points, initiating a series of rate hikes in subsequent meetings until February 2023. Cumulatively, the repo rate was raised by 250 basis points between May 2022 and February 2023.
A turning pitch
RBI expects ease in liquidity conditions on the back of release of the remaining impounded I-CRR funds and pickup in government spending. Whereas increase in currency demand due to festival season may act as a counterbalancing factor.
RBI Guv said that it is a turning pitch and we will play our shots carefully.
We may have to consider OMO-sales (Open Market Operation sales) to manage liquidity, consistent with the stance of monetary policy, said RBI Guv. The timing and quantum of such operations will depend on the evolving liquidity conditions, he added.
RBI wants banks to lend funds to peers
Recently, banks have shown a preference to place funds under the overnight SDF instead of offering them in the main 14-day variable rate reverse repo (VRRR) operations. As per RBI, It is imperative that banks assess their actual liquidity requirements over the reserve maintenance cycle and bid accordingly in the auctions under main 14-day VRRR operations.
RBI said that it would be desirable that banks having surplus funds explore lending opportunities in the inter-bank call market rather than passively parking funds in the SDF at relatively less attractive rates.
RBI reasoned this with the fact that greater volume of call money transactions would not only help in deepening the inter-bank money market but also lower the recourse of deficit banks to the MSF.
Reference Link:- https://economictimes.indiatimes.com/news/newsblogs/rbi-mpc-meet-2023-live-news-monetary-policy-reserve-bank-of-india-shaktikanta-das-speech-latest-updates-06-october-2023/liveblog/104198981.cms