RBI MPC
Lets decode the major points of the Monetary Policy of RBI :-
- Repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent.
- Standing deposit facility (SDF) rate remains unchanged at 6.25 percent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
- The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation aligns with the target, while supporting growth.
- Global economic activity remains resilient amidst the persistence of inflation at elevated levels, turmoil in the banking system, tight financial conditions and lingering geopolitical hostilities.
- Sovereign bond yields fell steeply in March on safe haven demand, reversing the sharp increase in February over aggressive monetary stances and communication.
- Equity markets have declined since the last MPC meeting and the US dollar has pared its gains.
- The sudden announcement of an output cut by OPEC a few days ago and the resultant jump in crude oil prices is yet another evidence of this volatility. Weakening external demand, volatile capital flows and debt distress in certain vulnerable economies weigh on growth prospects.
- India’s real gross domestic product (GDP) growth at 7.0 per cent in 2022-23. Private consumption and public investment were the major drivers of growth.
- CPI headline inflation rose from 5.7 per cent in December 2022 to 6.4 per cent in February 2023 on the back of higher inflation in cereals, milk and fruits and slower deflation in vegetables prices.
- Core inflation (i.e., CPI excluding food and fuel) remained elevated and was above 6 per cent in January-February.
- With CPI headline inflation ruling persistently above the tolerance band, the MPC decided to remain resolutely focused on aligning inflation with the target. An environment of low and stable prices is necessary for the resilience in domestic economic activity to be sustained.
Other Information Regarding Monetary Policy
- While the policy rate has been increased by a cumulative 250 basis points since May 2022, which is still working through the system, there can be no room for letting down the guard on price stability. Taking these factors into account, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting, with readiness to act, should the situation so warrant.
- The MPC will continue to keep a strong vigil on the evolving inflation and growth outlook and will not hesitate to take further action as may be required in its future meetings. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.
- Raised the GDP growth forecast for the current fiscal to 6.5% from the earlier projection of 6.4%. The World Bank and the ADB reduced their economic growth forecasts for India to 6.3% and 6.4% respectively.
- RBI lowered its inflation projection for FY24 to 5.2% from the earlier estimate of 5.3%. The Governor said that inflation globally has moderated but descent to target is long and arduous. The Governor said that the expectation of record Rabi harvest bodes well for headline inflation.
Stock Market Movement and Index Movement
After the monetary policy announcements the markets took a sudden u-turn due to the Bank Nifty movement. The Bank Nifty recovered for more than 300 points in just a span of 2 minutes which also pushed Nifty to turn positive from the red zone. Hence the indices have been strong since the MPC announcements as the markets have been celebrating the first rate hike cancellation in the last many many bi-monthly announcements. Currently the FIIs have also turned net buyers which has pushed the nifty50 from the bottom of 16900 to 17600 levels within 2 weeks. If the flow continues then we can expect a 18200 level very soon. However the road ahead seems a bit bumpy.
The overall world economics situation suggests that the markets cannot receiver or grow at the speed it needs to. The situation around the world will be pulling down the markets in every way possible starting from the banking failures in the U.S. to the attack ships of China entering Taiwan and finally there is the Russia Ukraine situation on top of everything else.
Further Road
The Indian markets are viewed as a stable shelter for money in the current situation when the inflow of money may be witnessed in the time to come. However this is not a permanent situation so there will be volatility noticed in the further time period. We can also see the Nifty50 moving in this range of 17200 to 17700 for a long time. However any good news can push the same above 18000 levels in no time. So let’s all hope for positive information in the times to come for the Indian Markets.
