RBI on Friday 30th September said that the recent sharp rate hikes and forward guidance about further big rate hikes have caused tightening of financial conditions, extreme volatility, and risk aversion. All segments of the financial market including equity, bond and currency markets are in turmoil across countries. There is nervousness in financial markets with potential consequences for the real economy and financial stability. The global economy is in the eye of a new storm. Despite this unsettling global environment, the Indian economy continues to be resilient. There is macroeconomic stability. The financial system remains intact, with improved performance parameters. The country has withstood the shocks from COVID-19 and the conflict in Ukraine.
MPC’s rationale for its decisions on the policy rate and the stance– The global economic outlook continues to be bleak. Financial conditions are tightening and recession fears are mounting. Inflation continues to persist at alarmingly high levels across jurisdictions. The enduring effects of the pandemic and the geo-political conflict are manifesting in demand-supply mismatches of goods and services. Central banks are charting new territory with aggressive rate hikes, even if it entails sacrificing growth in the near term. In this milieu, nervous investor sentiments have triggered a flight to safety. The US dollar has strengthened rapidly to a two-decade high. Several advanced and emerging market currencies are facing sharp depreciation pressures. Emerging market economies (EMEs), in particular, are confronted with challenges of slowing global growth, elevated food and energy prices, spillovers from advanced economy policy normalization, debt distress, and sharp currency depreciations.
| POLICY RATES | |
| Policy Repo Rate | : 5.90% |
| Standing Deposit Facility Rate | : 5.65% |
| Marginal Standing Facility Rate | : 6.15% |
| Bank Rate | : 6.15% |
| RESERVE RATIO | |
| CRR | :4.5% |
| SLR | :18% |
Decisions and Deliberations of the Monetary Policy Committee (MPC):
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MPC decides to increase the policy repo rate by 50 basis points to 5.9%, Repo Rate saw an increase of 190 bps (It was 4% In April & it’s 5.90% now).
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The standing deposit facility (SDF) rate stands adjusted to 5.65%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.15% hiked by 50 basis points.
Assessment of Growth:
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Real GDP grew by 13.5 %( y-o-y) in Q1:2022-23, surpassing the prepandemic level by 3.8%.
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Bank credit grew at an accelerated pace of 16.2% y-o-y as on September 9, 2022, against 6.7% a year ago
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Seasonally adjusted capacity utilization of the manufacturing sector improved from 73.0%in Q4: 2021-22 to 74.3% in Q1:2022-23 – its highest level in three years.
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Industrial activity, reflected in the growth of the index of industrial production (IIP) (y-o-y), slipped to 2.4% in July however PMI, indicates sustained expansion at 56.2 in August.
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Services PMI rebounded to 57.2 in August from 55.5 in July. Business confidence rose to a 51-month high.
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RBI GDP Estimates:
| GDP Current Estimates | GDP Previous Estimates | |
| FY-23 | 7% | 7.20% |
| Q2FY23 | 6.30% | 6.20% |
| Q3FY23 | 4.60% | 4.10% |
| Q4FY23 | 4.60% | 4% |
| Q1FY24 | 7.20% | 6.70% |
Assessment of Inflation:
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Inflation inched up to 7.0% in August from 6.7% in July.
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Acute imported inflation pressures felt at the beginning of the financial year have eased but remain elevated across food and energy items.
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With services activity showing a strong rebound and some improvement in pricing power, risks of higher pass-through of input costs, however, do remain.
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Assuming Crude at $100/bbl vs $104/bbl earlier Crude procurement rate.
- RBI CPI Estimates:
| CPI Current Estimates | CPI Previous Estimates | |
| FY-23 | 6.70% | 6.70% |
| Q2FY23 | 7.10% | 7.10% |
| Q3FY23 | 6.50% | 6.40% |
| Q4FY23 | 5.80% | 5.80% |
| Q1FY24 | 5% | 5% |
INR Depreciation:
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During the current financial year (up to September 28), the US dollar has appreciated by 14.5% against a basket of major currencies. This has caused turmoil in currency markets globally. The movement of the Indian Rupee (INR) has, however, been orderly compared to most other countries. It has depreciated by 7.4% against the US dollar during the same period – faring much better than several reserve currencies as well as many of its EME and Asian peers.
External Sectors:
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The current account deficit (CAD) for Q1:2022-23 is placed at 2.8% of GDP with a trade deficit at 8.1% of GDP
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Exports of services grew at a robust pace of 35.4% (y-o-y) in April-June this year. For the same period, remittances rose by 22.6%. The net surplus on exports of services is expected to partly offset the higher trade deficit.
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FDI improved to US$ 18.9 billion in April-July 2022 from US$ 13.1 billion a year ago.
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Foreign portfolio investors (FPIs) have returned to the domestic market with a net inflow of US$ 7.5 billion during July-September after an outflow for nine consecutive months
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India’s foreign exchange reserve at US$ 537.5 billion as on September 23, 2022, compares favourably with most peer economies. About 67% of the decline in reserves during the current financial year is due to valuation changes arising from an appreciating US dollar and higher US bond yields.
Source: RBI Press Releases
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