RBI monetary policy | MPC keeps repo rate unchanged at 6.5% for fifth consecutive time; top highlights

RBI Monetary Policy 2023: The six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) on Friday, December 8, kept the repo rate unchanged at 6.5 per cent for the fifth consecutive meeting.

The decision was broadly in line with analysts' and economists' expectations. Here are the top 5 takeaways from today's MPC meet:

Policy rate or repo rate

The key policy repo rate has been retained at 6.5 per cent. The repo rate is the rate at which the central bank of any country (RBI, in the case of India) lends money to commercial banks in case of any shortfall of funds. However, following global cues, the repo rate can be lowered going forward early next year.

SDF, or standing deposit facility, is retained at 6.25 per cent, while margin standing facility, or MSF, and bank rate are retained at 6.75 per cent.

Withdrawal of accommodation

Alongside, the apex bank has maintained its stance as withdrawal of accommodation, said the RBI Governor, with a majority of five-panel members out of 6 voting for the stance. There were estimates that there could be some tinkering in the stance, but that didn't go through. This is largely because the government and its policies are working to bring inflationary levels back to the RBI's target level of 4 per cent. 

GDP outlook

The government further hinted that the domestic economy is showing resilience. The apex bank stated that, on the back of festive demand, domestic consumption saw an increase. For FY24, GDP growth is estimated at 7 per cent. The estimate has been increased from 6.5 per cent to 7 per cent. This is a big positive in general.

Inflation outlook retained

The governor pointed out that there is a risk of inflation as an upward price rise in the food basket can take it higher. Nonetheless, it added that inflation has receded from the highs of last year. The governor said the increase in sugar prices is a matter of concern. For FY24, the monetary policy has kept the CPI estimate at 5.4 per cent, while for the third quarter of the current year, it is placed at 5.4 per cent. 

UPI payment limit increased

To make the payment ecosystem more friendly, the RBI has increased the UPI payment limit for hospitals and education from Rs 1 lakh to Rs 5 lakh.

Commenting on the policy, Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers, said," The RBI maintained the exact status quo concerning policy rates and liquidity stance, as anticipated. The RBI has increased its GDP forecast for FY24 by 50 basis points, to 7 per cent, while leaving the inflation forecast unchanged."

The policy was, on the whole, less hawkish than had been anticipated. Simultaneously, the governor issues specific warnings regarding premature adjustments to monetary policy rates and liquidity stance, which indicate that the rate pause and liquidity withdrawal stance may persist for a longer duration than initially expected.

"We maintain our assessment that no rate reductions will occur until the latter part of fiscal year FY25. An upward adjustment to the GDP forecast would have a favourable effect on market sentiment," the economist added.