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MPC Meeting October 6, 2023



In its recent monetary policy meeting, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, unanimously decided to maintain the repo rate at 6.5%. While in line with expectations, this decision is aimed at ensuring liquidity tightness through bond sales to control inflation and maintain macroeconomic and financial stability. The RBI's projections for GDP growth and consumer inflation for the current fiscal year remained at 6.5% and 5.4%, respectively. This policy stance aligns with global efforts to address soaring inflation without hindering economic growth.


A Summary of MPC Meeting Discussion


Approach Towards Fintech and Banking Licenses:

  • The RBI clarified its approach towards fintech companies and banking licenses.

  • It stated that the recent "No Objection Certificate" was granted for a merger proposal involving a non-banking financial company (NBFC) and a small finance bank (SFB).

  • The RBI emphasized that it carefully assesses the fitness and propriety of such proposals, considering financials and future bank setup.


Withdrawal of ₹2,000 Notes:

  • The RBI extended the deadline for depositing or exchanging ₹2,000 notes until October 7.

  • It was made clear that the RBI anticipates that most of these notes will be returned.

  • Facilities for exchange include RBI's Issue Offices in state capitals and the option to send notes through the Postal Department.


Rupee Exchange Rate Management:

  • The RBI is committed to managing the exchange rate of the Indian Rupee (INR) but does not target a specific level.

  • The primary goal is to prevent excessive volatility and ensure an orderly appreciation or depreciation of the currency.


Household Financial Savings:

  • The press conference discussed a decline in household financial savings for FY 2022-23, attributed to the pandemic's impact.

  • Savings temporarily increased due to movement restrictions, but later decreased as spending resumed.

  • However, there was a 14% increase in absolute savings and a shift towards physical savings, particularly in housing.


Inflation Management:

  • The RBI's inflation targeting policy aims to anchor inflation around 4%.

  • The monetary policy report suggests that inflation is expected to average around 4.5% for FY 2024-25.


Monetary Policy Impact on Common People:

  • The RBI stressed that its monetary policy decisions consider the well-being of approximately 140 crore people in India.

  • Reducing inflation through policy actions increases the purchasing power of common individuals.


Pricing of Bank Loans and Deposits:

  • Banks have not aggressively passed on rate cuts to new loans while focusing on existing loan portfolios.

  • Aggressive pricing, particularly in the lower end of the deposit basket (1-to-3-year deposits), has been observed.

  • The RBI acknowledged that pricing may vary across banks and should align with individual bank strategies.


Call Money Market and NEFT:

  • The RBI addressed the extension of the call money market and NEFT operations.

  • Certain banks have expressed operational difficulties, and the RBI is reviewing these concerns.


Remittances:

  • Seasonal variations in remittances were highlighted, and it was clarified that a comparison of Q1 to Q4 is not suitable.

  • Despite variations, there is an overall increase in remittances.


 

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