Quote on MPC announcement by Mr. Prashant Pimple Fixed Income Baroda BNP Paribas Mutual Fund
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Below the Comments on the RBI Monetary Policy by Prashant Pimple, Chief Investment Officer - Fixed Income Baroda BNP Paribas Mutual Fund
As expected, RBI kept its key rate unchanged at 6.50% and retained its stance of withdrawal of accommodation to ensure inflation remains within 4% target band. All 6 members of the Monetary Policy Committee (MPC) decided to hold rate steady keeping in mind the growth inflation dynamics and liquidity situation. After a series of hikes till Feb 2023 RBI has held on to the current rate to support onshore growth and is expected to hold rates longer given the evolving inflation situation and Global monetary actions.
Temporarily, RBI decided to hike Incremental CRR (ICRR) of 10% for a period till Sep 2023 to address surplus liquidity generated by various factors including return of Rs 2000 Notes to the banking system. This measure was over and above the daily measure like variable repo rate (VRR) and variable reverse repo rate (VRRR) auction RBI had been conducting till now to address any liquidity issue.
Inflation is expected to stay above RBI target band of 4% (+/- 2%) in the near term due to spike in vegetable prices which seems to be seasonal and El Nino effect which can have slightly longer impact. Accordingly, RBI revised its FY 24 inflation expectations upwards to 5.40% from 5.10% and retained its GDP forecast stable at 6.50%.
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