RBI MPC meeting highlights: From rates unchanged to a UPI gift for citizens, Guv Das' top announcements

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--The benchmark lending rate or the repo rate will remain unchanged at 6.5 percent, Reserve Bank of India (RBI) Governor Shaktikanta Das announced on December 8, following the conclusion of the three-day meeting of the central bank's Monetary Policy Committee (MPC).

--Other key announcements: Inflation projection for the ongoing fiscal has been retained at 5.4 percent, whereas, the GDP growth forecast has been upgraded from 6.5 percent to 7 percent.

Read all announcements made by Guv Das here

Clearly, Das believes that the economy is firing on all engines and even if one of its engines (private investment) is yet to live up to expectations, it would soon get there. As for the other engine, private consumption has moderated, Das is positive that conditions are ripe for consumption to improve from here on. Read our view here

--Agree with RBI's assessment on GDP growth for FY24. This upward revision on GDP is well placed. Stickiness on inflation is there: Economic Affairs Secretary Ajay Seth.

--Supply side measures for food products will continue to be taken as is being taken: Seth

Reaching 4 percent inflation should not be a one-off event. It should be at 4 percent on a durable basis. And the MPC should have confidence that 4 percent has been reached durably, says Guv Das in post MPC press conference.

Concerns that inflows from India’s inclusion in global bond indices could cause volatility are overblown. We have the instruments needed to take care of that, says RBI Deputy Governor T Rabi Sankar

We have to see what the impact of India’s inclusion in JPMorgan global bond index is. Analysts have made various estimates. We have the capacity to deal with those kinds of inflows. If you see our track record, we have dealt with these kinds of flows in the past, be it inflow or outflow, says RBI Guv Das

The first half GDP growth has beaten all estimates, including ours. The October-November data is also very robust. So 7% GDP growth forecast for FY24 is like a conservative estimate: RBI Deputy Governor Michael Patra

Savings account interest rates haven’t increased much, yes. But it must be pointed out that these interest rates are de-regulated and the introduction of any kind administered rate would be a retrograde step. It is a commercial decision of banks, says Guv Das

We refrain from giving any forward guidance considering the kind of uncertainty that lies ahead of us. I have said that the future is fickle and new shocks can come from anywhere. With inflation still some distance from 4 percent, I cannot give any guidance: Guv Das

Personal loans of less than Rs 50,000 makes up less than half a percent of total outstanding credit. So it does not pose a system-level risk. While there might be some recalibration of business models and moderation of credit growth in some segments, that would be the impact of the prudential measures playing out, says RBI Deputy Governor Swaminathan J.

The risk weigh measures is a prudential measure to moderate growth in certain segments. It is not tantamount to turning off the tap.

We have not said that OMO sales are off the table. All we have said is that due to certain factors beyond our control, the need for OMO sales has not come up so far. The tool remains on the table and will be used, if and when required, depending on evolving liquidity conditions, says Guv Das

We are not giving any kind of a signal that we are moving towards neutral stance: Guv Das

We do not communicate anything to markets inadvertently. All our communication is carefully prepared. We know everything we say, a comma, full-stop, is analysed. So if somebody is assuming that five meetings in a row of no rate action means a neutral stance, it would not be correct at all, says Guv Das

-- We are not trying to curtail loan growth. But we expect the lenders to conduct their business such that avoidable risk build-up is mitigated: Swaminathan

--Our November 16 steps on consumer credit were pre-emptive measures. We had made effort in the previous 3-4 months to sensitise players in the industry to put additional controls. As there was not much of a response, we watched the data and announced the prudential measures: Swaminathan J

--So it is too early to say what effect these measures are having. But early signs are that risk management practices and underwriting are getting better: Swaminathan J

--We have always tried to be balanced. The law says the primary target is 4% inflation, which I have emphasised. But we also have to keep in mind the objective of growth. In May 2022, when we prioritised inflation over growth, that same approach and stance continues. Our decisions are dependent on inflation and growth. Inflation is our top priority now, says Guv Das

--We still have some way to reach 4%. So the mention on risk of overtightening should not be read as a change in our approach or any kind of loosening being around the corner, adds Guv Das

As part of our supervision and proactive monitoring of the financial sector, we try and stay up to date. We have deepened our supervisory methods. We try to use the ‘smell test’ also. So if we smell any stress building anywhere at system or entity level, we address it. says Guv Das

Current account deficit is expected to be modest and comfortably financed. The forex reserves provide a strong buffer against global spillovers, says Guv Das

Moving forward, monetary policy can’t be on auto-pilot. The future path is expected to be clouded by uncertain food prices. CPI data for November is expected to be high: Guv Das

--CPI data for November expected to be high, says Guv Das

--On the inflation front, the summer of 2022 is behind us. We have made significant progress in bringing down inflation. The steady decline in core inflation indicates that monetary policy is working, says Das in post MPC press conference

The years 2020-2023 will perhaps go down in history as a period of great volatility: RBI Guv

--Like Paytm smaller loans, now RBI thinks web aggregation of loan products needs more governing norms. Policy Bazar - PB Fintech shares under pressure, now trading at Rs 835.85 apiece on BSE at 11:30 am. Company's loan business likely to be impacted as analysts say negative implications to be assessed.

--RBI Guv Das said the MPC will lay down a regulatory framework for web-aggregation of loan products. This comes after the central bank observed some concerns of loan products harming customers’ interest.

MPC's decision on holding rates came in line with the expectations of most economists. Earlier, all of the 10 economists and bankers who had participated in a Moneycontrol poll had predicted that the MPC will go for a status quo this time as well.

A rate cut, at this point, was off the table for a few reasons. Read more here

--The policy was, on the whole, less hawkish than had been anticipated...We maintain our assessment that no rate reductions would occur until the latter part of fiscal year 2024-25. An upward adjustment to the GDP forecast would have a favourable effect on market sentiment: Sujan Hajra, Chief Economist, Anand Rathi Shares and Stock Brokers

--Overall, we believe the RBI is firmly set on the course of policy pause for now, but predict 100 basis points of cumulative policy easing starting from August 2024 as inflation moderates and growth headwinds gather: Aurodeep Nandi, India Economist at Nomura

--Overall, the policy tone was comfortable, while MPC still insisting on keeping an eye on inflation and financial stability risk and active liquidity management.We maintain the RBI will stay vigilant, and it is unlikely to precede the Fed in any policy reversal in 2024: Madhavi Arora, Lead Economist at Emkay Global Financial Services

--No significant surprise in the RBI’s decision to persist with existing policy rates... We are more optimistic about growth, so we welcome the upward revision of the RBI’s forecast for 2023-24 to 7 percent: Prasenjit Basu, Chief Economist at ICICI Securities

Guv Das announced that India's foreign exchange reserves reached $604 billion for the week ending December 1, an increase of $2.54 billion.

--“We propose to allow reversal of liquidity facilities under both Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) even during weekends and holidays with effect from December 30, 2023," Governor Shaktikanta Das said in his Monetary Policy announcement.

--Das said that this to facilitate better fund management by banks. “The measure to be reviewed after six months.”

Read more here

The UPI limit for payments to hospitals and educational institutions now stands revised upwards from Rs 1 lakh to Rs 5 lakh per transaction.

RBI also proposed a FinTech repository by April 2024. We encourage fintechs to provide relevant information voluntarily to this repository, said the Guv.

The RBI has proposed to lay down a regulatory framework on web aggregation of loan products. This is expected to enhance transparence in digital lending.

We will come out with a unified regulatory framework on connected lending for all regulated entities of the Reserve Bank. This will further strengthen pricing and management of credit by regulated entities, said the Guv.

RBI Governor Shaktikanta Das said we do not wait for the house to catch fire and then act on measures taken to curb retail loan growth

We have decided to allow reversal of liquidity facilities under Standing Deposit Facility and Marginal Standing Facility even during weekends and holidays with effect from December 30, 2023. This measure should allow better fund management for banks. It will be reviewed after six months, or earlier, if needed.

The overall tightening of liquidity has meant that the need to conduct open market sale of government bonds has not arisen so far.

The RBI’s balance sheet has moderated as a percentage of GDP. We consider this as a significant achievement. System liquidity turned into deficit in September after a gap of nearly four and a half years.

RBI guv said notwithstanding the progress made on lowering inflation, the 4 percent target is yet to be reached and we have to stay the course.

-- CPI inflation forecast for October-December 2023 retained at 5.6 percent.
-- CPI inflation forecast for January-March 2024 retained at 5.2 percent.
-- CPI inflation forecast for April-June 2024 retained at 5.2 percent.
-- CPI inflation forecast for July-September 2024 pegged at 4.0 percent.
-- CPI inflation forecast for October-December 2024 pegged at 4.7 percent.

-- GDP growth forecast for October-December 2023 raised to 6.5 percent from 6.0 percent.
-- GDP growth forecast for January-March 2024 raised to 6.0 percent from 5.7 percent.
-- GDP growth forecast for April-June 2024 raised to 6.7 percent from 6.6 percent.
-- GDP growth forecast in July-September 2024 seen at 6.5 percent.
-- GDP growth forecast in October-December 2024 seen at 6.4 percent.

GDP growth forecast for FY24 raised to 7.0 percent from 6.5 percent.

There is a gradual turnaround in rural demand. Festival related demand is also spurring households’ discretionary spending in the current quarter.

The manufacturing PMI rose in November, while the services PMI has remained buoyant and displayed healthy expansion.

Economic activity in India exhibited buoyancy in July-September. Growth was robust at 7.6 percent, driven largely by investment and government consumption, said the Guv

There has been broad based easing in core inflation, which shows the effect of monetary policy. But inflation will likely tick up in November and that needs to be monitored for second round effects, if any.

Standing Deposit Facility and Marginal Standing Facility rates also remain unchanged at 6.25 percent and 6.75 percent, respectively. MPC also voted, by 5 votes to 1, to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

GDP numbers exceeded all forecasts, fundamentals intact, external balance manageable, says Guv Das. Conditions apt for growth, he adds

As 2023 comes to an end, the long-awaited normality still eludes the global economy, says governor Das, adding that core inflation continues to be sticky

-- Predicted inflation rate for FY24 at 5.4% likely to remain the same, with only 10% expecting a slight upward revision.
-- On GDP numbers, most expect the RBI to increase the forecast for the year to between 6.6% and 6.9% based on a stronger-than-expected performance in the second quarter.
-- On tone, a more cautious outlook, leaning towards hawkish than dovish.

There are persisting risks that may jack up inflation going ahead and it could manifest in food price escalation as an effect of the El Nino weather conditions. A potential resurgence in the food inflation could add pressure to the overall inflation numbers

While the market participants are keenly awaiting the RBI’s revised inflation and GDP forecasts, they are also keeping a close watch on any additional measures by the central bank to suck out the excess liquidity.

Benchmark indices opened higher as traders await the policy outcome. The central bank is largely expected to keep repo rate unchanged at 6.50%. The NSE Nifty 50 was 41.30 points, or 0.2% higher, at 20,943.45, , while the S&P BSE Sensex was trading 110.33 points, or 0.17% higher at 69,643.17

Rupee was flat against dollar before the policy outcome. The local currency opened flat at 83.36 against the U.S dollar on Friday.

The yield on the 10-year bond opened flat at 7.24% on Friday. RBI is most likely to go for a status quo today

RBI MPC meeting live updates: Traders in wait-and-watch mode
Traders are in wait-and-watch mode. They may take cues from US weekly unemployment change and Challenger job cuts data, says Anuj Choudhary-- Research Analyst at Sharekhan by BNP Paribas

Parijat Agarwal, Head-Fixed Income, Union Asset Management Company: "Although MPC will emphasise on bringing inflation to the 4 per cent target, we expect MPC to remain on pause on rates and stance."

International crude oi prices can leak into domestic economy just by denting sentiment, especially for the exchange rate. The rupee is already at historic lows. That means imported inflation would seep into domestic prices soon enough. This puts the RBI’s vow to bring inflation to 4 percent under risk.

The second quarter GDP data shows an increase in government spending, typically witnessed ahead of elections. The government could hold on to fiscal prudence and dial down its spending a notch in the coming quarters.

While an easing core inflation gives reason to rejoice, what matters ultimately is the overall headline number. Food inflation is expected to give its share of trouble with farm output under the cloud.

There is no upsetting item that can call for a change in either the stance or even the votes. There is no problem of hurting the economy with tight monetary policy as Fed. At best, the RBI could crank up its GDP growth forecast for FY24 marginally after the recent robust data.

Chief Economic Advisor V Anantha Nageswaran said India Inc needs to move away from consumption-led investment and not be constrained by imagination as uncertainties are going to be there. The current decade will be a decade of uncertainty, he told a CII gathering

While one section of Street feels there could be a cut in rates coming shortly, with elections less than six months away, another feels RBI is unlikely to do so ahead of the Fed cutting rates in the US, as it could otherwise add to the pressure on the rupee. The Street will be closely watching what the central bank has to say on consumer loans today.

GIFT Nifty was trading down 0.04% from its overnight close at 21,073, indicating that the Nifty 50 will open higher than Thursday's close of 20,901.15.

After a three-month dip, retail inflation is anticipated to have surged in November on the back of higher food prices. This surge is expected to bring the inflation rate closer to the upper threshold of RBI's range of 2%-6%

A Deutsche Bank report suggests the MPC won't be making any tweaks to repo rates until June, adding that the current interest rate cycle has reached its highest point, and RBI is not anticipated to pursue additional increases unless deemed absolutely essential.

The Confederation of Indian Industry sees a growth rate of 6.8 percent for the country's economy in the ongoing fiscal year, with a further acceleration to 7 percent in 2024-25.

On global front, all three major central banks – US Federal Reserve, Bank of England and European Central Bank – have kept rates on hold/have left interest rates unchanged in their latest policy decisions, though have indicated that policy to stay tight for ‘extended period’.

At this point, it looks like the central bank will raise the annual growth forecast modestly, drawing comfort from the revival seen on ground. The latest growth numbers may offer comfort to the panel. On the inflation-front, the central bank may continue to warn about uncertainty and leave the projection unchanged. With respect to the policy stance (withdrawal from accommodation), the MPC is likely to continue as a divided house
-- Dinesh Unnikrishnan, Editor-Banking & Finance

Inflation remains above the MPC’s target. It is safe to assume that today’s MPC meet will be a non-event both for the financial markets and for the common man. But what is important to note the tone of the Governor’s statement at 10 am that could offer clues on the thinking within the panel on future rate course.

CLSA economists believe the RBI would need to bring the repo rate down as core inflation won’t warrant a high real policy rate. “Our call for an 8 February RBI rate cut is based on the real RBI repo rate already hitting a high of 270bps, based on core inflation,” they wrote.

If real interest rates remain elevated and they will if the RBI holds on to its unerring focus of bringing headline inflation to 4 percent, it is likely to dampen demand and even investments from firms.

Umesh Revankar, Executive Vice Chairman, Shriram Finance says there was a decline in inflation to 4.7 percent in October 2023, adding that this has kindled hopes of a return to the declining rates regime. "RBI, however, raised risk weights on consumer credit, credit card receivables, and NBFC exposure to control the liquidity in the system. It clearly indicates that the MPC will maintain the repo rate at 6.5 percent.”

With liquidity in deficit, there is no need for open market operation sales although the RBI would rely on active liquidity management. We will be watching out for the Governor’s commentary on adjusted risk weights and retail credit portfolio. While we expect no change in the liquidity stance, the commentary is likely to be neutral.

The point of caution for RBI would be weakening rupee as Indian rupee settled at an all-time closing low of 83.39 against the US dollar on December 5, 2023.

The next two inflation readings (November and December 2023) could be close to 6 percent driven by higher food inflation, lower area sown under pulses, dip in reservoir levels, El Niño conditions and volatile global energy prices. Amongst all this, easing core inflation is a silver lining.

With higher government bond redemptions scheduled in December and likelihood of higher FPI flows, RBI may consider the deployment of tools like open market operations (OMOs) to suck additional liquidity out of the market

The central bank will likely maintain a hawkish tone to indicate rates will remain high. Even though the RBI says its monetary policy is independent of the US Federal Reserve’s, currencies in emerging markets such as India are closely tied to what the Fed does. The RBI is unlikely to shift policy until the world’s largest economy moves first toward easing.

RBI is likely to raise its full-year estimate to 6.8% from 6.5%, said Kaushik Das, an economist with Deutsche Bank AG, while probably retaining its inflation forecast at 5.4%.

RBI governor in October said the central bank may sell bonds in the open market, a move that would drain liquidity and boost short-term interest rates. Bond investors are watching closely for any hints Das will follow through on that call.

Pranjul Bhandari, an economist with HSBC Holdings, says next two inflation readings could be close to 6%. Until food prices ease “the RBI may want to err on the side of caution in its treatment of rates.”

RBI has left repo rate unchanged in its past four bi-monthly monetary policies. The central bank last increased repo rate in February to 6.5 per cent, ending the rate hiking spree which began in May 2022 in the aftermath of Russia-Ukraine war and disruptions in global supply chain resulting in high inflation.

In latest numbers, India’s GDP growth surprised positively at 7.6 percent YoY Q2FY24, beating the RBI’s projection by 110 bps for the quarter. It was backed by strong growth in manufacturing sector in Q2, making India the fastest growing large economy in the world.

RBI is likely to draw some comfort from global oil prices dropping to a 5-month low on faltering demand. But fears of the Israel-Hamas conflict expanding further linger after a fragile truce.

The better-than-estimated GDP growth may also elicit at relook at the RBI's growth forecast for the full year. The RBI had estimated GDP to grow at 6.5 percent in the July-September quarter.

Retail inflation eased to 4.9 percent in October. CPI inflation could have surged above the RBI's tolerance band of 6 percent in November, says a Barclays note. MPC is likely to remain in the wait-and-watch mode and monitor transmission of rates in the system.

Economists expect the MPC to maintain status quo at a time when concerns over high interest rates impacting economic growth have tapered with the second quarter GDP growth coming in at a robust 7.6 percent.