RBI Policy: MPC Holds Repo Rate At 6.5% | NDTV Profit
#RBIMPC holds repo rate at 6.5% for the sixth time.
Vishwanath Nair with the details. #RBIPolicy
Read all updates: https://bit.ly/3UyjyhP
Vishwanath Nair with the details. #RBIPolicy
Read all updates: https://bit.ly/3UyjyhP
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TVTranscript
00:00 The RBI Governor just concluded the speech for the February Monetary Policy Committee
00:05 meeting announcement. Remember that this is now the sixth consecutive policy where the RBI and
00:12 the MPC have maintained the benchmark repo rate at 6.5% as well as the regulatory stance at
00:19 withdrawal of accommodation. Both of these have reasons behind that and that's something that the
00:24 RBI Governor used this policy to explain. Firstly, on any kind of rate cut, now of course the RBI
00:30 does not give any clarity, the MPC does not give any clarity on what they are going to do in the
00:34 future but they do give some hints and those hints are very clear during the speech. The first issue
00:40 that the RBI is tackling, that the RBI Governor tackled in his speech was the fact that there is
00:46 still incomplete transmission of the 250 basis points worth of rate hikes that the RBI has done
00:53 over the last year, year and a half. That has not yet moved on to the broader credit market,
00:59 now that's something that the RBI Governor specified. The second point is that inflation
01:03 continues to remain above the 4% target and the RBI's job is not yet done. These are the words
01:09 that the RBI Governor used. So that will give you an indication that till that job is done you
01:13 cannot expect any kind of monetary easing or any kind of change in stance. So unless you fix the
01:20 transmission of interest rates as well as bring inflation down to the acceptable 4% mark, you will
01:27 not see any kind of movement on the interest rates. That's likely what is going to happen.
01:32 Important to note what the RBI's trajectory of inflation is going ahead. So for FY24,
01:38 the RBI is estimating inflation to be, CPI to be around 5.4% with Q4 at 5%. So we are still away
01:47 from the 4% target. Then comes FY25 and the estimation there. There inflation hits 4% only
01:52 around September and then again the following six months of the next fiscal, it will go up again to
01:59 about 4.5, 4.7%. So once again you will see that inflation is still seeing some amount of volatility.
02:07 The RBI Governor was specific to mention that food price volatility continues to worry the RBI and
02:14 they need to find ways to destabilize any kind of generalization of food price inflation and the
02:20 effect that will have on the headline inflation number. On the growth front, the RBI is very,
02:24 very clear that the momentum that we saw in FY24, the strong growth momentum that we've seen in FY24
02:30 will continue in FY25. With FY25 GDP growth is estimated to be about 7%. That will now be the
02:37 fourth consecutive year if the actual growth meets those estimates. That will be the fourth consecutive
02:42 year where growth has remained above 7% or 7% or above. So that's the other important bit.
02:49 On the liquidity front, now that was something that we were closely watching out for because
02:52 in the December policy the RBI Governor did mention that inflation has sort of tightened
02:58 faster than what they had estimated. But since then things have started to improve.
03:02 The RBI Governor mentioned that from the second fourth night of January as well as in February,
03:08 you are seeing the government spending picking up and that is sort of ensuring that system
03:14 liquidity does continue to remain in surplus. The potential banking sector liquidity is in surplus.
03:19 The RBI said that they are completely ready with two-way operations which is to infuse as well as
03:26 absorb excess liquidity whenever necessary and that they will keep a keen eye on where
03:31 the liquidity moves on from here. The last bit which to my mind is very, very important
03:37 is announcements regarding to key fact statements as far as lending is concerned.
03:42 So far, digital lenders had to maintain a key fact statement that they give to the customers
03:47 which explains all the charges involved with a retail loan. So now the RBI is extending that
03:52 requirement to all banks and NBFCs for all retail and MSME loans. That will increase
03:57 the compliance cost for banks but of course improve transparency in the lending system.
04:01 The second bit is on CBDC where the RBI Governor said that the RBI has proposed to introduce
04:06 additional programmability on CBDC. Something a little bit more interesting to watch out for
04:12 because what does additional programmability mean? It ensures that the money that is given
04:16 to somebody in the form of CBDC can only be used for specifically defined purposes and not for
04:22 anything else. Now if the intention is to make CBDC the equivalent of paper currency,
04:27 then additional programmability comes sort of in opposition to that proposition. So we need to
04:32 see how exactly the RBI intends to bring in additional programmability without affecting
04:36 the fungibility factor of currency. So these were some of the key highlights of the RBI Governor's
04:42 speech. Of course, a little later there will be a press conference where the RBI Governor
04:46 will field questions from reporters. We will try and get a little bit more clarity from him.