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RBI’s Monetary Policy (September 30, 2022): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on September 30, 2022. Here are some of the highlights of the monetary policy announcement.

Rates and reserves

 

 Change Revised rate
Policy repo rate Increase by 50 basis points 5.90%
Standing deposit facility (SDF) rate 5.65%
Marginal standing facility (MSF) rate 6.15%
Bank rate 6.15%
India’s foreign exchange reserves (as on September 23, 2022)

 

 US$ 537.5 billion

Monetary policy stance

  • Withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.

Economy 

 

 GDP growth projection CPI inflation projection
FY 2022-23 7.0% 6.7%
Q2 of FY 2022-23 6.3% 7.1%
Q3 of FY 2022-23 4.6% 6.5%
Q4 of FY 2022-23 4.6% 5.8%
Q1 of FY 2023-24 7.2% 5.0%

  • The real GDP grew by 13.5% (y-o-y) in Q1:2022-23, surpassing the pre-pandemic level by 3.8%.
  • Inflation inched up to 7.0% in August from 6.7% in July.
  • During the current financial year (up to September 28), the US dollar has appreciated by 14.5% against a basket of major currencies. However, the Indian Rupee (INR) has depreciated by 7.4% against the US dollar during the same period - faring much better than several reserve currencies as well as many of its Emerging Market Economies (EME) and Asian peers.
  • The current account deficit (CAD) for Q1:2022-23 is placed at 2.8% of GDP with trade deficit at 8.1% of GDP. 
  • About 67% of the decline in reserves during the current financial year is due to valuation changes arising from an appreciating US dollar and higher US bond yields.

Other measures

  • Banks currently follow the incurred loss approach whereby provisions on loan assets are made after the stress has materialised. A more prudent and forward-looking approach is the expected loss-based approach, which requires banks to make provisions based on an assessment of probable losses. RBI will issue a discussion paper on the proposed transition for stakeholder comments.
  • The revised framework for securitisation of standard assets was issued by RBI in September 2021. A framework for securitisation of stressed assets will be introduced to provide an alternative mechanism for securitisation of NPAs, in addition to the existing ARC route. A discussion paper on the proposed framework is issued for feedback from stakeholders.
  • Regional Rural Banks (RRBs) are currently allowed to provide Internet Banking facility to their customers, subject to fulfilment of certain criteria. To promote the spread of digital banking in rural areas, these criteria have been rationalised.
  • Online Payment Aggregators (PAs) have been brought under the purview of RBI regulations since March 2020. These regulations are proposed to be extended to offline PAs, who handle proximity / face-to-face transactions.


References

Reserve Bank of India. (2022, September 30). 'Governor’s Statement'. Retrieved from https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=54464


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