RBI Monetary Policy Announcement

Tags: Economy/Finance National News

RBI Governor Shaktikanta Das announced the second monetary policy of this financial year on 8 June. There has been no change in the repo rate for the second time in a row.

An overview of the news

• After the meeting of the Monetary Policy Committee, the RBI announced the monetary policy, saying that the repo rate would remain unchanged at 6.5%.

• Consumer Price Inflation eased but remains above the target.

• Continued efforts to manage liquidity and currency circulation.

• The current account deficit is expected to narrow further in the fourth quarter.

• Net inflows into non-resident deposits increased to US$ 8 billion in FY23 from US$ 3.2 billion in the previous year.

• The Indian Rupee has remained stable since January this year. Conditions are favorable to accelerate capital expenditure.

Monetary Policy Committee's Decision

• Policy repo rate remains unchanged at 6.5%.

• Standing Deposit Facility (SDF rate) remains at 6.25%.

• Marginal Standing Facilityand bank rates stand at 6.75%.

Inflation Trends in India

• Consumer Price Inflation eased during March-April 2023.

• Inflation moved into the tolerance band, declining from 6.7% in 2022-23.

• Headline inflation remains above the target and is expected to continue in 2023-24.

• Projected CPI headline inflation for 2023-24 is 5.1%, assuming a normal monsoon.

Withdrawal of Rs 2000 Note

• Decline in currency circulation and increased government spending.

• System liquidity expansion due to RBI's market operations.

• Deposit of Rs 2000 banknotes in banks further augmented liquidity.

• So far ₹1.8 lakh crore worth ₹2,000 banknotes have come back after the central bank announced to take these out of circulation. 

• This is 50% of the total ₹3.62 lakh crore-worth notes in circulation as of March 31.

What is the repo rate?

• Repo rate is the rate at which the central bank of a country (RBI in India's case) lends money to commercial banks when they are short of funds. Here the central bank buys securities.

What is the Monetary Policy Committee? 

• Under Section 45ZB of the amended RBI Act 1934, the Central government is empowered to constitute a six-member Monetary Policy Committee (MPC) to determine the policy interest rate required to achieve the inflation target. 

• The first such MPC was constituted on September 29, 2016.

• As per the RBI Act, the MPC must meet a minimum of four times in a year.

• The meeting of the Monetary Policy Committee was held from 6 to 8 June 2023.