RBI MPC Meeting April 2024 Highlights: RBI holds repo rate at 6.5%

RBI MPC Meeting April 2024 Highlights: RBI holds repo rate at 6.5%

Subject: Economy

Section: Monetary Policy

Context: In the post monetary policy press conference, RBI Governor Shaktikanta Das said inflation is moderating and the GDP growth is robust. 

Highlights

• Benchmark interest rate or repo rate kept unchanged at 6.5%
• GDP growth for 2024-25 retained at 7% , lower than 7.6% last fiscal
• Retail inflation to average 4.5% this fiscal, lower than 5.4% in FY24
• Food price uncertainties to continue to weigh on inflation outlook
• With rural demand catching up, consumption is expected to support economic growth in FY25
• Outlook for agriculture, rural activity appears bright, with good rabi wheat crop and improved prospects of kharif crops, due to expected normal monsoon
• Strong rural demand, moderating inflationary pressures and sustained momentum in manufacturing and services sector to boost private consumption
• The headwinds from protracted geopolitical tensions and increasing disruptions in trade routes, however, pose risks to the outlook
• Strong growth momentum, along with GDP projections for 2024-25, gives RBI the policy space to unwaveringly focus on price stability
• Trading of Sovereign Green Bonds permitted in International Financial Services Centre (IFSC)
• RBI to launch a mobile app to facilitate retail participation in G-secs
• RBI to allow cash deposits in banks through UPI
• The central bank permits non-bank payment system operators to offer CBDC (Central Bank Digital Currency) wallets
• Net inflows by foreign portfolio investors (FPI) stood at $41.6 billion during 2023-24, the second highest level of FPI inflow after 2014-15
• India continues to be the largest recipient of remittances in the world
• Current Account Deficit in 2024-25 to remain at a level that is both viable and eminently manageable
• RBI to allow UPI payments from PPI wallets via third-party apps
• The Indian rupee remained largely range-bound as compared to its emerging market peers as well as a few advanced economies during 2023-24
• The Indian rupee most stable among major currencies in FY24
• RBI to modify LCR framework to facilitate better management of liquidity risk by banks
• Next MPC meeting scheduled during June 5 to 7, 2024

Concept-

• Repo Rate: The interest rate that the RBI charges when commercial banks borrow money from it is called the repo rate.
• Reverse Repo: The interest rate that the RBI pays commercial banks when they park their excess cash with the central bank is called the reverse repo rate.
• Since RBI is also a bank and has to earn more than it pays, the repo rate is higher than the reverse repo rate.
• At present, the repo rate is 4%, and the reverse repo rate is 3.35%.
• It is a key deciding factor for the interest rates that commercial banks themselves pay (or get) when they borrow (or deposit) money from (or in) the Reserve Bank of India.

Monetary Policy Committee

• The Monetary Policy Committee is a statutory and institutionalized framework under the Reserve Bank of India Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.
• An RBI-appointed committee led by the then deputy governor Urjit Patel in 2014 recommended the establishment of the Monetary Policy Committee.
• The Governor of RBI is ex-officio Chairman of the committee.
• The committee comprises six members (including the Chairman) – three officials of the RBI and three external members nominated by the Government of India.
• Decisions are taken by majority with the Governor having the casting vote in case of a tie.
• The MPC determines the policy interest rate (repo rate) required to achieve the inflation target (4%).