Skip to main content

RBI’s Monetary Policy (October 06, 2023): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on October 06, 2023. Here are some of the highlights of the monetary policy announcement.

Rates

 

ChangeRate
Policy repo rateUnchanged6.50%
Standing deposit facility (SDF) rate6.25%
Marginal standing facility (MSF) rate6.75%
Bank rate6.75%

Monetary policy stance

  • Withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.

Global economy

  • The global economy is slowing under the impact of tight financial conditions, protracted geopolitical tensions and increasing geoeconomic fragmentation. 
  • Global trade is contracting. 
  • Headline inflation is easing but rules above the target in major economies. 
  • While major central banks are signalling a peaking of their rate hike cycle, there are indications that the tight monetary policy stance could persist for longer than anticipated earlier. 
  • Sovereign bond yields have firmed up, the US dollar has appreciated, and global equity markets have corrected.

Domestic Economy 

 

GDP growth projectionCPI inflation projection
FY 2023-246.5%5.4%
Q2 of FY 2023-246.5%6.4%
Q3 of FY 2023-246.0%5.6%
Q4 of FY 2023-245.7%5.2%
Q1 of FY 2024-256.6%5.2%
  • Growth –
    • Domestic economic activity exhibits resilience on the back of strong domestic demand.
    • Domestic demand conditions are likely to benefit from sustained buoyancy in services, consumer and business optimism, government’s continued thrust on capex, healthy balance sheets of banks and corporates, and supply chain normalisation. 
    • Real gross domestic product (GDP) posted a growth of 7.8% year-on-year (y-o-y) in Q1:2023-24.
  • Inflation –
    • The heightened inflation levels in July and August at 7.4% and 6.8% respectively, were largely driven by food price pressures.
    • Core inflation softened to 4.9% during July-August 2023.
    • Near-term inflation is expected to soften on the back of vegetable price correction, especially in tomatoes, and the reduction in LPG prices.
    • Inflation target is 4% and not 2-6%. Aim is to align inflation to the target on a durable basis, while supporting growth.
  • Headwinds from geopolitical tensions and geoeconomic fragmentation, volatility in global financial markets, global economic slowdown, uneven monsoon, global food and energy prices, pose risks to the outlook.
  • Financial market –
    • The transmission of the 250 basis points (bps) increase in the policy repo rate to bank lending and deposit rates is still incomplete.
    • Excessive liquidity can pose risks to both price and financial stability. To ensure that liquidity conditions evolve in sync with the monetary policy stance, as a temporary measure, an incremental cash reserve ratio (I-CRR) of 10% was imposed, which impounded about ₹1.1 lakh crore from the banking system. The I-CRR was reviewed on September 08, 2023 and is being discontinued in a phased manner, ending October 07, 2023.
    • The Indian banking system continues to be resilient, backed by improved asset quality, stable credit growth and robust earnings growth.
  • External Sector –
    • The current account deficit (CAD) for Q1:2023-24 declined to 1.1% of GDP.
    • India’s foreign exchange reserves stood at US$ 586.9 billion as on September 29, 2023.
    • External debt to GDP ratio was placed at 18.6% at end-June 2023 and reserves to external debt ratio was 94.6%. 
    • The reserve cover of imports is over 10 months.

Other measures

  • The extant prudential norms for projects under implementation have been reviewed and a comprehensive regulatory framework applicable for all regulated entities will be released for public comments. 
  • Under the Large Exposures Framework, Non-Banking Financial Companies (NBFCs) in the Upper Layer are permitted to use Credit Risk Mitigation (CRM) instruments for reducing their exposures to a counterparty. NBFCs in the Middle and Base Layers will also be permitted to use CRM instruments for reducing their counterparty exposure under the credit concentration norms.
  • To incentivize the Urban Co-operative Banks (UCBs) that have met the prescribed Priority Sector Lending (PSL) targets as on March 31, 2023, the existing limit for Gold Loans under the Bullet Repayment scheme has been increased from ₹2 lakh to ₹4 lakh. 
  • A draft omnibus framework for recognising Self-Regulatory Organisations (SROs) for various categories of Regulated Entities (REs) of RBI will be issued for stakeholder comments.
  • Payments Infrastructure Development Fund (PIDF) Scheme was operationalised RBI in January 2021 for a period of 3 years to incentivise the deployment of payment acceptance infrastructure such as physical Point of Sale (PoS), Quick Response (QR) codes in tier-3 to tier-6 centres, north eastern states and Union Territories of Jammu & Kashmir and Ladakh. Beneficiaries of PM SVANidhi Scheme in Tier-1 and 2 centres were later included in August 2021. 
    • As at end-August 2023, over 2.66 crore new touch points have been deployed under the Scheme. 
    • The scheme has been extended by 2 years, i.e., up to December 31, 2025. 
    • The coverage of PIDF scheme is also being expanded (i) to include the beneficiaries of PM Vishwakarma Scheme and (ii) to deploy emerging modes of payment acceptance, such as soundbox and Aadhaar-enabled biometric payment acceptance devices. 
  • At present, Card-on-File (CoF) token can only be created through merchant’s application or webpage. CoF token creation facilities will now be introduced directly at the issuer bank level. 
  • At present, the Internal Ombudsman (IO) framework in regulated entities comprises of separate guidelines for select Scheduled Commercial Banks (SCBs), Non-Bank issuers of Prepaid Payment Instruments (PPIs), NBFCs; and all Credit Information Companies (CICs). These guidelines have similar design features but vary in certain operational aspects. The IO guidelines will be consolidated and harmonised into a single master direction. 


References

Reserve Bank of India. (2023, October 06). 'Governor’s Statement: October 6, 2023'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56501

Reserve Bank of India. (2023, October 06). 'Statement on Developmental and Regulatory Policies'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56503


Follow at - Telegram   Instagram   LinkedIn   Twitter   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Reserve Bank of India Act, 1934 – Part-II – Section 17 to 19

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the second article in the series.  Section 17 – Business which the Bank may transact RBI shall be authorized to carry on and transact the several kinds of business hereinafter specified, namely – 17(1) – Accept deposit without interest from the Central / State Government, local authorities, banks and any other persons. 17(1A) – Accept deposit, repayable with interest, from banks or any other person under the Standing Deposit Facility Scheme, as approved by the Central Board, for the purposes of liquidity management.   Bills of Exchange (B/E) & Promissory Note (PN) Bearing 2 or more good signatures, one of which shall be of B/E & PN arising out of Maturing within 17(2)(a) Purchase, sale and rediscou...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-I – Preamble and Section 1 to 13

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the first article in the series. Preamble of the Act RBI to – Regulate the issue of bank notes. Keep reserves for monetary stability in India. Operate currency and credit system of the country to its advantage. The primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth. Chapter I – Preliminary Section 1 – Short title, extent and commencement 1(1) – This Act may be called the Reserve Bank of India Act, 1934. 1(2) – The Act extends to whole of India. Chapter II - Incorporation, Capital, Management and Business Section 3 – Establishment and incorporation of Reserve Bank 3(1) – RBI to take over management of the currency from the Central Government. 3(2) – RBI to have perpetual succession, common seal, and shall by...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-III – Section 20 to 40

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the third article in the series.  Chapter III - Central Banking Functions Section 20 – Obligation of the Bank to transact Government business RBI shall undertake – To accept monies for account of the Central Government and to make payments up to the amount standing to the credit of its account, and to carry out its exchange, remittance and other banking operations. Management of the public debt of the Union. Section 21 – Bank to have the right to transact Government business in India The Central Government shall entrust RBI with – All its money, remittance, exchange and banking transactions in India, and shall deposit free of interest all its cash balances with RBI. The Central Government may carry on money transactions at places where RBI has no branches or agencies and m...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-IV – Section 42 to 45

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the fourth article in the series.  Section 42 – Cash reserves of scheduled banks to be kept with the Bank 42(1) – Every bank included in the Second Schedule shall maintain with RBI an average daily balance at a percent (notified by RBI) of its total demand and time liabilities in India. 42(1A) – RBI may direct every scheduled bank to maintain with RBI, in addition to the balance prescribed under Section 42(1), an additional average daily balance at a rate (specified by RBI). 42(1C) – RBI may specify any transaction or class of transactions to be regarded as liability in India of a scheduled bank. If any question arises as to whether any transaction or class of transactions shall be regarded as liability in India of a schedule bank, the decision of RBI thereon shall be fina...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-V – Section 45B to 45JA

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the fifth article in the series.  Chapter IIIA - Collection and Furnishing of Credit Information Section 45B – Power of Bank to collect credit information RBI may collect credit information from banking companies and furnish it to any banking company in accordance with section 45D. Section 45C – Power to call for returns containing credit information RBI may direct any banking company to submit statements relating to credit information. Section 45D – Procedure for furnishing credit information to banking companies A banking company may apply to RBI to provide credit information. RBI shall furnish the requested credit information without disclosing the names of the banking companies which have submitted the information. RBI may levy fees of up to Rs.25 for furnishing credit...
Post a Comment
Read more