RBI bulletin unveils economic insights: Global slowdown, monetary expectations, power transition and policy transmission dynamics

The Reserve Bank of India (RBI) released its November 2023 Bulletin, offering a comprehensive view of the economic landscape, monetary policy expectations, and sector-specific transitions.

According to the RBI bulletin, the Global economy shows signs of a slowdown, with manufacturing lagging and services sector growth reaching a plateau.

In India, Q3:2023-24 anticipates higher GDP momentum, buoyed by festival demand and resilient investment activities.

Headline inflation decreased to 4.9 per cent in October, down from the 2022-23 average of 6.7 per cent.

Analysis of Overnight Index Swaps (OIS) rate reveals rare unanticipated changes in policy rates, suggesting effective RBI communication.

Anticipated policy rate changes show no immediate impact on longer-term interest rates, but monetary policy surprises influence various market segments instantly.

The RBI bulletin explores risks related to stranded assets in the coal and fossil fuel sectors and their impact on banks and financial institutions. Suggests the potential of coal transition mechanisms to expedite the shift towards cleaner energy.

It recommends a balanced approach for a smooth transition considering India's developmental needs.

Recent Dynamics reviews recent monetary policy transmission dynamics in India amidst the shift in the monetary policy cycle.

The external benchmark-based lending rate (EBLR) system strengthens transmission during the tightening phase.

A high credit deposit (CD) ratio increases deposit and lending rates. Surplus liquidity and surplus SLR reduce deposit rate pass-through.

Surplus liquidity and a higher share of CASA deposits in total deposits have a softening impact on lending rates.

The bulletin provides valuable insights into the economic scenario, monetary policy expectations, and the ongoing transition in critical sectors, reflecting the RBI's commitment to transparency and effective policy communication.