Tag: RBI Monetary Policy

RBI Monetary Policy 2024: India’s forex reserves rise to a record high of $645.6 billion

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India’s foreign exchange reserves hit a record high of $645.6 billion as of March 29, 2024, Reserve Bank of India Governor Shaktikanta Das said on Friday.

Foreign exchange or forex reserves are cash and other reserve assets like gold and silver that are held by a country’s central bank or any other monetary authority, which are mainly used to balance a country’s payments and ensure the currency rate remains stable.

In the previous reported week, the overall reserves had risen to $636.09 billion earlier this month. During the same report, gold reserves had increased by $425 million to $51.14 billion.

Also Read: RBI reiterates 7% GDP growth forecast for FY25 contrary to market expectations of a raise

India’s forex reserves had earlier hit the mark of $645 billion in October 2021. They had then taken a hit after the RBI deployed some of these reserves to defend the currency amidst the global market pressures.

The Indian rupee has strengthened after the RBI’s policy announcement, currently trading at 83.39 against the US Dollar.

Reserve Bank of India’s Monetary Policy Committee left interest rates unchanged on Friday for the seventh straight instance, while leaving most other parameters unchanged as well.

For the financial year 2025, the Reserve Bank of India has pegged the Dollar exchange rate at ₹83 against the US Dollar, compared to ₹82.5 in the second half of the financial year 2024.

Also Read: RBI MPC leaves inflation projection for FY25 unchanged at 4.5%, assuming a normal monsoon

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RBI Monetary Policy 2024: Interest rates unchanged for the seventh time in a row

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) has left its key lending rate (repo rate) unchanged at 6.5%, in line with market watchers’ and economists’ expectations. This was the seventh straight instance of the policy rates left unchanged by India’s central bank.

A CNBC-TV18 poll had expected the RBI MPC to maintain a status quo.

The decision to keep the rates unchanged was taken with a 5:1 majority. The RBI MPC decided by a 5:1 majority to remain focused on “withdrawal of accommodation”.

The RBI MPC also left the Marginal Standing Facility (MSF) and Standing Deposit Facility (SDF) rates unchanged at 6.75% and 6.25%, respectively.

Speaking to CNBC-TV18’s Shereen Bhan on the sidelines of the World Economic Forum (WEF) 2024 at Davos in January this year, governor Shaktikanta Das had quashed hopes of an early rate cut. The governor had explained that price stability is the bedrock for sustainable growth, and a premature pivot in policy can prove costly for the economy.

The RBI has maintained India’s fiscal year 2025 GDP growth target at 7%. The governor mentioned that the impact of above-normal temperatures warrants monitoring.

The governor during his speech highlighted that while inflation is moving closer to target, the last mile of inflation is turning out to be challenging. As a result, the central bank has left the Consumer Price Inflation (CPI) forecast unchanged at 4.5%.

“Two years ago around this time, when CPI inflation peaked at 7.8% in April 2022, the Elephant in the room was inflation, the elephant has gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis,” the central bank Governor said.

“The policy is broadly on expected lines. Things I would like to borrow from the governor’s speech is that liquidity management is nimble and flexible. I think we could witness in the last few weeks that the liquidity is not constrained in the system. Whenever liquidity is excess, absorption was done and when the shortfall was noticed, injection was done. What the governor has assured us in terms of being nimble and flexible is reassuring,” SBI Managing Director CS Setty said.

The RBI governor also warned that the government risks in advanced economies could erupt abruptly and that emerging economies with rising debt could be vulnerable.

Catch the live updates on RBI MPC here.

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Experts expect RBI to keep interest rates unchanged in April

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) is gearing up for its Monetary Policy Committee (MPC) meeting from April 3rd to 5th, 2024, amid a backdrop of robust growth in India and a thriving US economy that influences global trends.

CNBC-TV18 recently convened a Citizen’s MPC discussion to delve into the RBI’s potential moves regarding interest rates and its guidance for the future.

Discussing India’s GDP growth, Sonal Varma, Managing Director & Chief Economist- India and Asia Ex-Japan at Nomura, expressed optimism. She highlighted the strong performance expected for FY24, with estimates inching towards 8%, surpassing the initial 7.6% advanced estimate.

Looking ahead to FY25, Varma anticipates a potential upgrade from the RBI’s projection of 7% to around 7.2%, aligning with recent models forecasting an even higher 7.4% growth.

Shifting the focus to inflation, Soumya Kanti Ghosh, Group Chief Economic Advisor at the State Bank of India, he foresees inflation remaining anchored within the 4 to 5% range for the next fiscal year, aided by potential continued deflation in core elements.

When questioned about the Reserve Bank’s actions regarding interest rates, Sonal Varma stated her expectation that the RBI would opt for a pause. Dr. Samiran Chakraborty, Chief Economist for India at Citi, Ghosh, Chinoy, and Dr. Pronab Sen shared a similar view, anticipating a pause in rates.

Regarding the RBI’s stance, Dr. Sen anticipates it to be neutral, while the others foresee no alteration in the RBI’s stance.

A majority of the 56 economists polled by Reuters believe the Indian central bank will hold off on rate revision until July, a bit longer than the anticipated actions of the US Federal Reserve, on strong growth and persistently high inflation.

Watch this video for more.

Also Read | Jayesh Mehta of DSP Finance thinks a rate cut by RBI may take six months

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI Monetary Policy: Experts highlight key takeaways

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC), on February 8, decided to leave the repo rate unchanged at 6.5% for the sixth straight time. The decision was in line with Street expectations.

Ashwini Kumar Tewari, MD of State Bank of India (SBI) said, the policy is on expected lines. “The industry, banks, and everyone else want policy stability and predictability above all else and this policy is supportive of it,” he added.

Also Read | RBI Monetary Policy: FY24 inflation forecast unchanged at 5.4%; FY25 estimate at 4.5%

Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, called it a “fairly balanced policy.”

Sanjay Parekh, Founder & CIO of Sohum Asset Managers concurred with Bhardwaj, while noting concerns voiced by the RBI governor Shaktikanta Das regarding inflation uncertainty and volatility. The governor’s tone suggested that a change in stance and rate cuts might be on the horizon if inflation stabilises around 4%.

Also Read | RBI MPC Meet: Rate sensitives mixed; PSU banks rally, auto, realty stocks underperform

According to Kaushik Das, Chief Economist at Deutsche Bank, any change in stance could signal RBI‘s readiness to cut rates, which it might not want to indicate at this point.

However, Shobhit Mehrotra, Head Fixed Income at HDFC Asset Management was disappointed by the policy outcome as he believes the opportunity to provide better liquidity support to the system was missed.

Also Read | Banks must tell borrowers the entire cost of a loan including fees and other charges: RBI

Soumya Kanti Ghosh, Group CEA, SBI said, “One interesting take from the policy is, basically, I call it a competitive forecasting. Because last two years, the RBI’s GDP forecast was lower than the government. This year, the RBI has straightaway put the forecast for FY25 at 7%. With inflation at 4.5%, this gives the government much leeway to have a higher nominal GDP target. So this means that the next year fiscal deficit target could actually be lower than 5.1%.”

Pranjul Bhandari, Chief India Economist, HSBC said, “One takeaway is that the RBI is no mode urgently to ease monetary policy and different parts of the policy gave the same message.”

For more, watch the accompanying video

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

John Stoltzfus says India will remain on global investors’ radar for these reasons

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oppenheimer Asset Management’s Managing Director and Chief Investment Strategist, John Stoltzfus, says “India is well positioned to take on the process of diversification of the global supply chain, away from one country centricity.” This will help retain global investors’ interest in the country.

In an interview with CNBC-TV18, Stoltzfus said their view on globalisation has been that this diversification process, which began around 2016, will gather momentum and likely benefit both developed as well as emerging markets.

He pointed out that foreign investors are already familiar with the big names in the pharmaceutical, technology, steel, and manufacturing spaces and the list is set to expand. “So, most certainly India is an area of increasing interest in the US,” he added.

The diversification process, popularly referred to as the “China Plus One”, is a business approach being adopted by companies looking to diversify their manufacturing and supply chain away from China, adding at least one other country to their operational footprint to mitigate risks and dependencies.  With its large workforce, growing infrastructure, and supportive government policies, India is believed to be well-placed to benefit from this shift.

Also Read | Zerodha AMC’s LIQUIDCASE hits ₹150 crore AUM in 7 sessions: How is it different from other liquid ETFs?

Explaining the shift in investor focus from China to other countries, Stoltzfus said that the markets also care about revenues and profits, essentially, from an equity perspective as well as monetary policy. They looks for bets where it is not too restrictive and doesn’t curtail growth, but also the central banks are not too loose with the spending, as that can create bubbles.

Meanwhile, the Indian central bank, Reserve Bank of India (RBI), on February left its key lending rate (repo rate) unchanged at 6.5% for the sixth consecutive time. The RBI cited risks of food price shocks and geopolitical tensions as potential threats that could alter the course of the currently downward trajectory of inflation.

Also Read | RBI MPC Meeting 2024: Interest rates unchanged for sixth time in a row

For the entire interview, watch the accompanying video

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI Monetary Policy: FY24 inflation forecast unchanged at 5.4%; FY25 estimate at 4.5%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India, on February 8, kept its consumer price index (CPI) inflation forecast for the current financial year (FY24) unchanged at 5.4%. The central bank estimates the headline inflation for the next financial year (FY25) at 4.5%.

In its first monetary policy for 2024,  the RBI’s Monetary Policy Committee (MPC) alsorevised its projection for inflation for fourth quarter of FY24 (Q4FY24) downward to 5.0% from 5.2%.

Inflation has softened considerably and we expect it to moderate further in 2024, RBI Governor Shaktikanta Das said while announcing the policy.

“On the inflation front, large and repetitive food price shocks are interrupting the pace of disinflation that is led by the moderation of core inflation. Geopolitical events and their impact on supply chains, and volatility in international financial markets and commodity prices are key sources of upside risks to inflation,” he said

Das highlighted that the last mile of disinflation is always the most challenging, reiterating that stable and low inflation will provide bedrock for sustainable economic growth.

The MPC also left the policy rate unchanged, at 6.5%, for the sixth consecutive time. Consequently, Marginal Standing Facility (MSF) rate stays at 6.75%. MSF is the rate at which banks borrow overnight funds from RBI against government securities.

The MPC maintained the ‘withdrawal of accommodation’ stance aimed at controlling inflation and stabilising the economy by potentially increasing interest rates, and reducing the excess money supply.

Catch all the live updates from the RBI policy

While India’s headline retail inflation has declined from its 15-month peak touched in July last year, it is still above the RBI’s tolerance band of 2-6%. In December 2023, India saw its retail inflation rise to a four-month peak of 5.7%, up from 5.55% the previous month, primarily due to an increase in food prices, which climbed by 9.5% nationally.

The food price spike was sharper in the urban areas, surpassing 10%. Rural areas, while seeing a slightly less steep increase in food prices, endured higher overall inflation rates. Despite this uptick, the average inflation rate for the last quarter of the year was slightly below the RBI’s forecast.

Also Read: RBI MPC Meet 2023: Repo rate left unchanged at 6.5%, decision taken unanimously; Inflation a big risk

However, the government is confident that a slew of measures undertaken over the past months has helped reign in inflation. On February 7,  Union Finance Minister Nirmala Sitharaman told the Rajya Sabha that the prices of various food items including that of essentials such as dal (pulses), atta (flour), and onions have started declining and are now well within the tolerance band.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI MPC Meeting 2024: Interest rates unchanged for sixth time in a row

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India did not hike its lending rate (repo rate), in line with the consensus expectations of market watchers and economists. The repo rate was left unchanged at 6.5%, as announced in the December policy. A CNBC-TV18 poll had expected the Monetary Policy Committee to maintain a status quo. This is the sixth quarter in a row that the central bank has left interest rates unchanged.

The decision to keep the rates unchanged was taken unanimously. The Monetary Policy Committee also decided by a 5:1 majority to remain focused on “withdrawal of accommodation.”

The MPC also left the Marginal Standing Facility (MSF) and Standing Deposit Facility (SDF) rates unchanged at 6.75% and 6.25% respectively.

Speaking to CNBC-TV18’s Shereen Bhan on the sidelines of the World Economic Forum (WEF) 2024 at Davos, Governor Shaktikanta Das had quashed hopes of an early rate cut. The governor had explained that price stability is the bedrock for sustainable growth, and a premature pivot in policy can prove costly for the economy.

“Our policy has to remain actively disinflationary till we reach the target of 4% on a durable or sustainable basis, and that is our current stance,” the governor had said back then.

The global economy continues to present a mixed picture, the Governor said, adding that the Indian economy has performed remarkably well amidst uncertain times. “Inflation is on a downward trajectory,” Governor Das said.

For financial year 2025, India’s GDP growth is projected at 7%, the Governor said. For the first quarter of the next financial year, the GDP growth is projected at 7.2%, while for the second quarter, it is projected at 6.8%, higher than the 6.5% projected earlier.

On the inflation front, the MPC expects the country’s consumer price inflation for financial year 2024 to remain at 5.4%. For financial year 2025, the CPI inflation is projected to be 4.5%. The risks are evenly balanced.

Some of the additional measures announced by the central bank include:

• Review of regulatory framework for electronic trading platform will be issued for stakeholders feedback
• Resident entities are allowed to hedge price of gold in OTC segment in the IFSC.
• Requirement of Key Fact Statement (KFS) now extended to cover all retail and MSME loans.
• Proposal to streamline onboarding of AEPS service providers, along with introducing additional fraud risk management measures.
• Proposal to put in place a principle-based framework for authentication to enhance the security of digital payments.
• Proposal to enable additional functionalities of programmability and offline functionalities in CBDC payments.

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RBI can adjust cash reserve ratio to manage liquidity, say economists

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The cash reserve ratio (CRR) is a powerful tool used by the Reserve Bank of India (RBI) to control the flow of money in the economy. It dictates the amount of cash banks must hold in reserve, impacting their ability to lend and invest. As the RBI prepares for its monetary policy announcement on February 8, experts weigh in on how adjustments to the CRR can influence liquidity.

Leading economists, Pronab Sen, Samiran Chakraborty, Soumya Kanti Ghosh, and Sajjid Chinoy, discussed with CNBC-TV18 their expectations for the policy. Ghosh suggested that the RBI could make the CRR a dynamic tool, adjusting it in response to economic conditions to either absorb surplus liquidity or provide a buffer during financial stress.

Chakraborty introduced the idea of incremental CRR (ICRR) cuts, proposing a flexible approach where the RBI could fine-tune the ratio every two weeks, optimising liquidity management. ICRR is a form of CRR that applies only to the increase in a bank’s deposits over a certain period, rather than the total deposits.

According to Ghosh, the RBI could integrate a counter-cyclical element into its monetary policy, adjusting the liquidity coverage facility (LCF) and CRR based on real-time conditions. The LCF complements CRR in managing overall liquidity in the banking system and ensuring banks have enough high-quality liquid assets to cover short-term liquidity needs.

This flexibility could make CRR an automatic stabiliser during periods of financial stress or surplus liquidity.

Also Read | RBI’s crackdown on Paytm Payments Bank: The inside story

Understanding the Cash Reserve Ratio:

What is the cash reserve ratio?
The CRR is the percentage of a bank’s total deposits that must be kept as cash with the central bank. This reserve acts as a safeguard, ensuring banks maintain a level of liquidity but does not earn interest. While the rule applies mainly to scheduled commercial banks, regional rural banks, and non-banking financial companies (NBFCs) are not subject to CRR requirements.

What happens when CRR is increased?
Increased CRR means banks must maintain more cash with the central bank, reducing their capacity to lend and subsequently, decreasing the money supply in the economy. This helps control inflation and stabilise the financial system.

Also Read | India monetary policy has to remain actively disinflationary, says RBI chief

What will happen if CRR decreases?
Lowering the CRR requirement gives banks more funds for lending, boosting credit creation in the economy. It can stimulate economic activity by increasing the money supply.

What is the current CRR rate?
As of now, the CRR rate stands at 4.5%.

When was the last time CRR was changed?
The RBI had last increased CRR by 50 basis points to 4.5% on May 4, 2022.

For the entire discussion, watch the accompanying video

Catch all the latest updates from the stock market here

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Budget impact on RBI policy: Economists weigh in on fiscal deficit and monetary outlook

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government’s lower than anticipated fiscal deficit target, at 5.1%, for the next financial year, has shifted the spotlight to the upcoming monetary policy decision by the Reserve Bank of India (RBI), scheduled on February 8. A low fiscal deficit eases concerns about excessive government spending, allowing the central bank to contemplate normalising its policies, including interest rates.

In a discussion with CNBC-TV18, prominent economists Pronab Sen, former chief statistician, Samiran Chakraborty, Chief India Economist at Citibank, Soumya Kanti Ghosh, Group Chief Economic Advisor at SBI, and Sajjid Chinoy, Chief India Economist at JPMorgan shared their view on Budget 2024 delivered by Finance Minister Nirmala Sitharaman on February 1, and expectations from the RBI monetary policy due to February 8.

Pronab Sen drew attention to the importance of stimulating private investments, which has been sluggish, suggesting that even a modest boost in this direction could be beneficial.

Regarding the fiscal deficit, Samiran Chakraborty, Chief India Economist at Citibank, indicated “In our sense, if the government has to meet their deficit target for FY24, then over the next couple of months the amount of spending that the government will have to do that will more or less take care of this frictional banking system liquidity deficit issue by end of March.”

Chakraborty also stressed that the RBI needs to communicate with the markets that the reason for the weighted average call rate to stay closer to the marginal standing facility (MSF) rate is purely a liquidity issue and nothing to do with the stance of monetary policy. MSF is the short-term lending rate at which RBI provides funds to scheduled commercial banks.

Read Here | Budget 2024: Govt lowers fiscal deficit to 5.1% of GDP for FY25

Soumya Kanti Ghosh, Group Chief Economic Advisor at SBI, discussed the potential shifts in government spending patterns towards conditional disbursements. Ghosh suggested a mechanism where funds are released only after previous amounts have been spent, thereby keeping government cash balances with the RBI rather than banks.

Ghosh proposed incorporating counter-cyclical elements into monetary policy, such as adjusting the Liquidity Coverage Ratio (LCR) and Cash Reserve Ratio (CRR) based on prevailing liquidity conditions, to provide real-time stabilisation during periods of economic stress or surplus.

LCR is a regulatory requirement that mandates banks to hold a sufficient amount of high-quality liquid assets to cover short-term liquidity needs during times of financial stress. CRR is the portion of a bank’s total deposits that must be kept in reserve with the central bank, reducing the amount of funds available for lending and influencing the money supply in the economy.

Sajjid Chinoy, Chief India Economist at JPMorgan, discussed the US Federal Reserve’s decision to keep rates unchanged. He noted that the Fed is in a favorable position with sustained US growth and moderating core inflation. This situation allows central banks in developed markets to adopt a patient approach towards addressing inflation concerns, indicating a likelihood of easing measures later in the year.

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Experts caution ahead of RBI Monetary Policy: Weak growth, dual-paced economy, food inflation raise concerns

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) is set to announce its monetary policy on Friday, December 8. A CNBC-TV18 poll, as well as experts, indicated no hike or change in stance.

Pronab Sen, a Former Chief Statistician, expressed concerns about the current economic momentum, describing it as “weakish”. “The growth story isn’t quite as good as the headline numbers make it out to be. The momentum is not great at all. In fact, it’s weakish. Growth is something that they will have to keep their eyes on,” Sen said.

While acknowledging that inflation is currently under control, Sen warned of potential challenges ahead. He mentioned, “I would imagine that the job of the MPC (Monetary Policy Committee) isn’t quite as difficult as you make it out to be. I think they are going to have to manage both inflationary possibilities and try and build up the growth momentum. Otherwise, growth is going to drop down very sharply in the coming quarters.”

Read Here | India’s shadow banks are bracing for a cost spike and a credit squeeze

Samiran Chakraborty, Chief India Economist at Citi, echoed Sen’s sentiments. He noted that despite some positive economic indicators, there are concerns about a two-paced economy.

Chakraborty highlighted, “If you look into the details of the growth number, it’s a two-paced economy. There is the infrastructure, construction, manufacturing, sort of, if you may want to call it the investment side of the economy, which is doing much better. But if you look at the consumption side, that’s much weaker.”

Chakraborty also pointed out challenges in the informal sector within the GDP and identified a problem with food inflation. He mentioned, “If you even look at the different proxy indicators of what we can call the informal sector within the GDP number that has been surprising on the downside.”

However, he expressed scepticism about solving the issue of food inflation through monetary policy.

Read Here | India’s retail inflation declines to a 4-month low of 4.87% in October

Soumya Kanti Ghosh, Group Chief Economic Advisor at the State Bank of India, emphasised the need for caution, particularly regarding food inflation. Ghosh stated, “We need to remain cautious because food inflation is still a concern, and will remain a concern if you look into the change of the price behaviour in the market in the last couple of months.”

In the global context, Sajjid Chinoy, Chief India Economist at JPMorgan, provided a more optimistic outlook for the coming year. He noted a potential relief, stating, “Ending this year, there’s a little bit of relief, that maybe just maybe 2024 may not see a hard landing.”

Chinoy acknowledged that global growth is slowing but suggested that it might not be as sharp as feared. He also highlighted factors such as lower crude prices, making the global environment less hostile for India.

Chinoy said, “Last thing I will say from India’s perspective, even crude prices, which are above 90 and now below 80 because oil suppliers are struggling to coordinate. So lower US rates, a weaker dollar, lower crude prices make for a much less hostile global environment that we had to contend with two months ago.”

Also Read | US Fed’s Jerome Powell notes inflation is easing but downplays discussion of interest rate cuts

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow