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The Monetary Policy
Committee (MPC), at its meeting (June 8, 2023) agreed to: Maintain the policy
repo rate at 6.50 percent based on an evaluation of the existing and changing
macroeconomic conditions.
The rates for the bank
rate, the marginal standing facility, and the standing deposit facility (SDF)
remain the same at 6.25 percent and 6.75 percent, respectively.
The MPC also made the
decision to continue concentrating on the withdrawal of
accommodation to make sure that inflation gradually aligns with the objective
while fostering growth.
These choices are in
line with the goal of promoting growth while meeting the medium-term aim for
consumer price index (CPI) inflation of 4% within a range of +/- 2%.
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Global
Outlook:
The global economy is
still growing in the second quarter of 2023 despite continued high but dropping
inflation, tighter financial conditions, stress in the banking industry, and
persistent geopolitical conflicts.
Despite the US dollar’s
strength, investors are anticipating the tightening cycle’s coming climax,
which is why sovereign bond rates are moving sideways.
The equity markets have
remained range-bound since the last MPC meeting. Weak external demand, high
debt burdens, and geo-economic fragmentation in the context of tighter external
financial conditions pose risks to the development prospects of some economies
in emerging markets (EMEs), however, capital flows are gradually returning to
these nations as a result of improved risk appetite.
Domestic Economy
India’s real gross
domestic product (GDP) growth accelerated from 4.5 percent (year-over-year,
y-o-y) in Q3:2022-23 to 6.1 percent in Q4, driven by fixed investment and
greater net exports, according to early projections provided by the National
Statistical Office (NSO) on May 31, 2023. More than the second early estimate
of 7.0 percent, real GDP growth for 2022–2023 was estimated at 7.2%.
The first quarter of 2023–2024 will see
domestic economic activity continue robust, according to high-frequency indicators. The manufacturing purchasing managers’ index (PMI) reached a
31-month high in May and the services PMI reached a 13-year high in April-May.
Both indicators pointed to sustained growth.
The PMI Manufacturing is a measure of the state
of the economy derived from monthly interviews of supply and purchasing
managers from certain firms. It is a numerical value between 0 and 100, with a
score greater than 50 indicating expansion and one less than 50 indicating
contraction. No change is indicated by a reading of 50, and the economy is said
to be shrinking if the PMI for the previous month is greater than the PMI for
the current month.
- Domestic air passenger traffic, e-way
bills, toll collections, and diesel consumption all showed strength in the
services sector in April and May, whereas rail freight and port traffic only
experienced minor growth. - Urban spending is still strong, as
evidenced by indications like the sales of passenger cars and the increase in
domestic air travel that occurred in April. While unevenly, rural demand is
progressively increasing. In April, motorbike sales increased but tractor sales
decreased in part due to unseasonal rainfall. - The significant growth in April’s cement
and steel consumption indicates that investment activity is starting up.
While services exports continued their strong expansion in April, merchandise
exports and non-oil, non-gold imports remained in contraction mode. - On the strength of significant positive
base effects, CPI inflation dropped substantially from 6.4% in February to 4.7%
in April 2023, with softening seen across all three major categories. Food
category inflation decreased, with modest increases in the prices of cereals,
eggs, milk, fruits, meat, and fish, as well as spices and prepared meals. - The deflation of edible oils continued
to worsen. In the fuel category, kerosene prices experienced a decline in
prices and while LPG, firewood, and chip prices saw a decrease in
inflation. Clothing and footwear, home goods and services, health, transport
and communication, personal care and effects, and recreation and amusement
subgroups all contributed to a decline in core inflation (CPI inflation
excluding food and fuel).
The MPC decided to
maintain a careful eye on how the outlook for inflation and growth is changing.
In order to keep inflation expectations well-anchored and lower inflation to
the target, it will quickly and appropriately implement further monetary
actions as needed. The MPC also made the decision to continue concentrating on
the withdrawal of accommodation to make sure that inflation gradually
aligns with the objective while fostering growth.
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