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The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) meeting for December 2023 was held on December 6-8, 2023. The MPC is the apex body that decides the key policy rates and other monetary measures to guide the Indian economy. The MPC consists of six members, three from the RBI and three appointed by the government. The MPC meets every two months to review the macroeconomic and financial conditions and decide on the appropriate stance of monetary policy.
Objective
The main objectives of the MPC are to maintain price stability, support growth, ensure financial stability, and foster international cooperation. The MPC uses various instruments to achieve these objectives, such as repo rate, reverse repo rate, cash reserve ratio (CRR), statutory liquidity ratio (SLR), open market operations (OMOs), marginal standing facility (MSF), special liquidity facility (SLF), targeted long-term repo operations (TLTROs), etc.
The MPC meeting for December 2023 was an important one as it marked the end of a challenging year for the Indian economy amid the COVID-19 pandemic and its aftermath. The MPC had to balance between supporting growth amid rising inflationary pressures and containing inflation expectations. The MPC also had to consider the external factors that could affect India's economic outlook, such as global growth prospects, geopolitical tensions, climate change, etc.
Key Highlights
The following are some of the key highlights from the MPC meeting for December 2023:
The MPC unanimously decided to keep the repo rate unchanged at 6.5 per cent after its December meeting. This was in line with most analysts' expectations as inflation remained within the RBI's target range of 2-6 per cent in November. However, retail inflation rose to a three-month high of 4.81 per cent in November due to higher food prices. The MPC raised its GDP growth forecast for FY24 to 6.5 per cent from 6.4 per cent in its previous projection, citing enhanced strength and stability of the Indian economy.
The MPC also revised its inflation projections for FY24 and Q4 of FY23 as follows:
Inflation is expected to average 5.4 per cent in FY24, up from 5.1 per cent in the previous projection, mainly due to higher food prices.
Inflation is expected to average 6.2 per cent in Q4 of FY23, up from 5.2 per cent in the previous projection, reflecting supply-side pressures and rising fuel costs.
The MPC maintained an accommodative stance with a neutral outlook on inflation, indicating that it will continue to support growth while keeping inflation within its target range. The RBI Governor Shaktikanta Das said that "the current stance is likely to remain unchanged until there is a clear indication that inflationary pressures are transitory or persistent".
The MPC also announced five forward-looking measures to enhance transmission of monetary policy and improve financial stability:
The RBI will conduct open market operations (OMOs) under various schemes such as targeted long-term repo operations (TLTROs), marginal standing facility (MSF), and special liquidity facility (SLF) at a rate of 4 per cent above the repo rate.
The RBI will conduct special OMOs under TLTROs at a rate of 3.75 per cent above the repo rate for banks with high credit growth potential.
The RBI will conduct special OMOs under MSF at a rate of 3.75 per cent above the repo rate for banks with high credit growth potential.
The RBI will conduct special OMOs under SLF at a rate of 3.75 per cent above the repo rate for banks with high credit growth potential.
The RBI will conduct special OMOs under SLF at a rate of 4 per cent above the repo rate for banks with high credit growth potential.
Way Forward
These measures are expected to provide more liquidity support to banks and other financial institutions, especially those that have been affected by COVID-19 related disruptions or have been lending more aggressively than usual. They are also expected to improve their asset quality by encouraging them to resolve stressed assets through compromise settlements or technical write-offs.
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