
The Reserve Bank of India (RBI) recently marked its 90th anniversary, highlighting its significant role in shaping India’s economy over the decades. The RBI has been at the forefront of pivotal economic events, from nationalization in 1949 to navigating through various crises, including wars, market reforms, and the recent COVID-19 pandemic. Throughout its journey, the RBI has maintained a crucial balance between its developmental and regulatory roles, ensuring stability with integrity and professionalism.
Compared to many other central banks, the RBI has a broader range of functions essential for ensuring the macro-financial stability of India’s complex and dynamic economy. Its comprehensive scope enables a holistic approach to addressing critical financial sector and economic challenges, always prioritizing the nation’s interests. The RBI continues to evolve through continuous learning, adaptation, and innovation to effectively fulfill its multifaceted responsibilities.
Decisions and Deliberations of the Monetary Policy Committee (MPC)
In the recent Monetary Policy Committee (MPC) meeting held on April 3-5, 2024, the committee decided by a majority vote to maintain the policy repo rate at 6.50%. This decision was influenced by favorable growth-inflation dynamics observed since the previous policy meeting. Despite sustained economic growth surpassing projections, headline inflation moderated to 5.1% during January-February 2024.
However, challenges persist in the form of food inflation pressures, warranting vigilance against potential inflationary risks. Consequently, the MPC emphasized a continued focus on withdrawing accommodation to steer inflation towards the target of 4.0%, while also supporting sustainable economic growth.
Assessment of Growth and Inflation
Global Growth
Globally, the economy exhibits resilience despite ongoing geopolitical conflicts and disruptions in trade routes. Central banks remain cautious amidst persistent inflation and market volatility. Equity markets have performed well, although bond yields and the US dollar have shown volatility.
Domestic Growth
Domestic economic activity continues to expand at an accelerated pace, supported by robust investments and a favorable global environment. Real GDP growth for 2023-24 is estimated at 7.6%, reflecting sustained expansion across sectors, including manufacturing and services. Prospects for agriculture and rural demand appear promising, supported by expectations of a normal monsoon.
Inflation
Inflation has moderated significantly but remains above the 4% target due to uncertainties in food prices and cost-push pressures faced by businesses. Efforts are underway to anchor inflation expectations and ensure sustained disinflation, contingent upon favorable monsoon conditions.
Monetary Policy Implications
Given the favorable growth outlook and ongoing disinflation, the RBI’s focus remains on price stability to support sustained high growth. The goal is to moderate inflation durably, fostering a conducive environment for robust economic expansion.
Liquidity and Financial Market Conditions
Liquidity conditions have improved due to effective market operations and increased government spending. The RBI remains proactive in managing liquidity to maintain orderly money market interest rates, ensuring financial stability.
Financial Stability
Key indicators for scheduled commercial banks and non-banking financial companies (NBFCs) indicate healthy capital and asset quality. Emphasis is placed on governance and regulatory compliance to safeguard financial stability, underscoring the joint responsibility of all stakeholders.
External Sector
India’s external sector exhibits resilience, with a narrowing current account deficit and robust foreign portfolio investment inflows. Foreign exchange reserves have reached an all-time high, reflecting improved external vulnerability indicators.
Additional Measures
The RBI announced several measures to enhance financial market accessibility, including:
- Trading of Sovereign Green Bonds in IFSC: Facilitating wider non-resident participation in Sovereign Green Bonds.
- RBI Retail Direct Scheme Mobile App: Launching a mobile app for accessing the Retail Direct portal, enhancing retail investor convenience and deepening the G-sec market.
- Review of Liquidity Coverage Ratio (LCR) Framework: Undertaking a comprehensive review of the LCR framework for banks to address challenges posed by instant digital transactions.
- Enabling UPI for Cash Deposit Facility: Facilitating cash deposits through UPI in Cash Deposit Machines (CDMs) to enhance customer convenience.
- UPI Access for PPIs through Third Party Apps: Permitting the use of third-party UPI apps for making payments from Prepaid Payment Instruments (PPIs), boosting digital payment adoption.
- Distribution of Central Bank Digital Currency (CBDC) through Non-bank Payment System Operators: Expanding access to CBDC-Retail by enabling non-bank payment system operators to offer CBDC wallets.