SHRI RAM COLLEGE OF COMMERCE

RESEARCH PAPER
(SKILL ENHANCEMENT COURSE)

WRITTEN BY: APURVA

B.A. ECONOMICS HONORS
SECTION A
SEMESTER IV
ROLL NUMBER – 062
 INDEX
SERIAL NUMBER TITLE NAME PAGE NO.
1 Abstract 2

2 Acknowledgment 3

3 Introduction 5-9

4 Review of literature 10

5 Objective of study 11

6 Research Methodology 11

7 The Analysis 12-26

8 Interpretation 27

9 Conclusion 28

ABSTRACT
Our nation’s economy has been through numerous setbacks over the past few years. The unprecedented
emergence of the COVID-19 pandemic derailed the economy miserably. Nevertheless, we persevered
through those trying times with resilience and cooperation. However, just as we were about to make some
headway, the unstable geopolitical environment countered the good growth. My research paper aims to
summarise how our country’s central bank managed to get past these challenging circumstances without
further destabilizing the economy.
For the study, I have analyzed the monetary policy of RBI for the past year to demonstrate how we
weathered a turbulent period of inflation and an oncoming recession. This study aims to examine the
influence of the monetary policies undertaken by the RBI. The study investigates variables that affect
economic growth, such as the expansion of the LAF corridor, technical shocks, alterations in the size of the
capital stock, and demand side shocks that have a long-term impact on GDP. These variations are examined
using a variety of factors that contribute to GDP growth, such as the shifting output shares of the industries
of manufacturing, services, and finance, insurance, real estate, rental, and leasing (FIRE); mortgage debt;
technological change; inventories; labor force participation rates; wealth effects; and investment. RBI makes
use of various tools to achieve its objectives and I have tried to explain the way in which each tool is used
and its impact on the economy.
The research paper has been meticulously structured in order to present the matter in the most efficient
manner.

Introduction - This part of the report introduces us to the meaning of the term monetary policy and its
significance in our economy.

Study Area - This part explains in detail the study area of this report. It consists of an analysis of the
monetary policy formulations.

Literature Review - This part covers the various reviews on this topic addressed by famous scholars.

Objective - This part explains the objectives of this report.

Data Analysis - In this part, the data collected has been analysed further.

Interpretation - The collected data has been carefully interpreted to draw out conclusions.

Policy Implication - This part explains the impact of these policy decisions on the entire economy.

Conclusion - This part concludes the report.

KEYWORDS : Monetary policy, RBI, growth, inflation, repo rate, MPC, etc.

ACKNOWLEDGEMENT
The success and final outcome of this project required a lot of guidance and assistance from many people
and I am extremely privileged to have got this support all along the completion of my project.

I owe my deepest gratitude to our internal project mentor Dr. Ravi Kant, Assistant Professor, Department of
Economics, who took a keen interest in our project work and guided me all along, till its completion, by
providing all the necessary information for developing a good system.

I would also like to extend my gratitude to all the associated teachers and staff members of Shri Ram
College of Commerce, for providing me with the help and support needed to complete this report in the best
way possible.
I am thankful and fortunate enough to get constant encouragement from my peers and everybody else
around me who push me to be the best at all my endeavors. The process has been an experience of a lifetime
and I am enlightened by the knowledge that I have received in the course of completion of this research .

INTRODUCTION
MONETARY POLICY
Monetary Policy consists of a set of actions undertaken by the central bank of a county in order to control
and regulate the flow of money supply in the country. It aims to keep inflation under control while
promoting economic growth. The Reserve Bank of India, being the central bank of India has been vested
with the responsibility of the formulation of monetary policy and its efficient implementation. It has a
committee (MPC) that handles all the decisions related to monetary policies.

COMPOSITION OF MPC
The amended RBI Act, 1934 has section 45ZB which provides for an empowered six-member monetary
policy committee (MPC) to be constituted by the Central Government.
The first such MPC was constituted on September 2 2016. The present MPC committee consists of:
1.Governor of the Reserve Bank of India—Chairperson, ex officio;

2. Deputy Governor of the RBI, in charge of Monetary Policy—Member, ex officio;

3. One officer of the RBI to be nominated by the Central Board—Member, ex officio;

4. Prof. Ashima Goyal, Indira Gandhi Institute of Development Research - Member;

5. Prof. Jayanth R. Varma, Indian Institute of Management, Ahmedabad—Member; and

6. Dr. Shashanka Bhide, Senior Advisor, National Council of Applied Economic Research, Delhi—
Member.

FUNCTIONS OF MPC
The MPC has the following responsibilities:

 The MPC determines the policy repo rate to be followed across the country in order to keep inflation
under control.

 The MPC meeting are held at least four times in a year. The quorum for the meeting is four
members.

 Each member is allowed to cast one vote, and in the case of an equal of votes, the Governor has a
second or casting vote.

 Each Member of the Monetary Policy Committee has to write a statement specifying the reasons for
voting in favor of, or against the proposed resolution.

WORKING OF THE MONETARY POLICY COMMITTEE

The Monetary Policy Process is conducted in the following manner:
a) Meeting Schedule

The schedule of monetary policy meetings for the upcoming financial year is announced beforehand.

b) Meeting notice

A fifteen days’ notice is given to members for meetings of the Committee. In the event of an emergency
meeting, 24 hours’ notice is given to every member to enable him/her to attend, with technology-enabled
arrangements for an even shorter notice period for meetings.

c) Meeting duration

The duration of monetary policy meetings is decided by the Committee.

d) The MPC Resolution

After the conclusion of every meeting of the MPC, the resolution adopted by the said Committee is then
published by the Bank. The resolution includes all the MPC decisions and deliberations.

e) Minutes of the meeting

On the 14th day after every meeting of the MPC, the minutes of the proceedings of the MPC are published
which include: (a) the resolution adopted by the MPC; (b) the voting of each member on the resolution; and
(c) short written statements of individual members justifying the vote. The minutes are released at 5 pm on
the 14th day from the date of the policy day (or next earliest working day, if a holiday in Mumbai).

e) The Monetary Policy Report

Once in every six months, the Reserve Bank publishes the Monetary Policy Report containing an assessment
of recent global outlook and domestic economic situation.

INSTRUMENTS OF MONETARY POLICY

There are a variety of monetary policy implementation instruments. These are their names:

• Repo Rate:

The interest rate at which the Reserve Bank provides liquidity to all participants in the liquidity
adjustment facility (LAF) in exchange for the government and other approved securities as collateral.

• Standing Deposit Facility (SDF) Rate:

The rate at which the Reserve Bank accepts overnight uncollateralized deposits from all LAF
participants is known as the Standing Deposit Facility (SDF) Rate. In addition to its function as a
liquidity management tool, the SDF is also a tool for financial stability. The policy repo rate is 25
basis points higher than the SDF rate. The SDF rate became the floor of the LAF corridor in April
2022, replacing the fixed reverse repo rate.

• Marginal Standing Facility (MSF) Rate:

The penal rate at which banks can borrow overnight from the Reserve Bank by drawing from their
Statutory Liquidity Ratio (SLR) portfolio up to a predetermined threshold of two percent. The banking
system is protected from unanticipated liquidity shocks by this safety valve. The policy repo rate is 25
basis points higher than the MSF rate.

• Liquidity Adjustment Facility (LAF):

The Reserve Bank's operations that inject or absorb liquidity into the banking system are referred to as
the LAF. SDF and MSF are included, as well as overnight and term repo/reverse repos with fixed and
variable rates. Outright open market operations (OMOs), forex swaps, and the market stabilization
scheme (MSS) are other instruments of liquidity management in addition to LAF.

• LAF Corridor:

The policy repo rate is in the middle of the LAF corridor, with the marginal standing facility (MSF)
rate serving as the upper bound (ceiling) and the standing deposit facility (SDF) rate serving as the
lower bound (floor).

•Primary Liquidity Management Instrument:

The primary liquidity management instrument for managing frictional liquidity requirements is a
variable rate, 14-day term repo/reverse repo auction conducted in conjunction with the CRR
maintenance cycle.

•Fine-tuning Operations:

During the reserve maintenance period, the main liquidity operation is supported by overnight and/or
longer-tenor fine-tuning operations to tide over any unanticipated changes in liquidity. Additionally,
the Reserve Bank may hold longer-term variable rate repo/reverse repo auctions that last longer than
14 days if necessary.

•Reverse Repo Rate:

 The interest rate at which the Reserve Bank absorbs bank liquidity in exchange for the collateral of
eligible government securities under the LAF is known as the reverse repo rate. The RBI will be free
to conduct fixed rate reverse repo operations for a variety of reasons following the implementation of
SDF.

• Bank Rate:

The rate at which the Hold Bank is prepared to purchase or rediscount bills of trade or other business
papers. Banks are penalized for failing to meet their reserve requirements (cash reserve ratio and
statutory liquidity ratio) by the Bank Rate. Section 49 of the 1934 RBI Act mandates the publication
of the Bank Rate. This rate is in line with the MSF rate and adjusts automatically in tandem with the
policy repo rate when the MSF rate changes.

• Cash Reserve Ratio (CRR):

The average daily balance that a bank must keep with the Reserve Bank as a percentage of its net
demand and time liabilities (NDTL) as of the last Friday of the previous fortnight, as the Reserve
Bank may notify from time to time in the Official Gazette.

• Statutory Liquidity Ratio (SLR):

Every bank in India must keep assets that are worth at least a certain percentage of its demand and
time liabilities in India as of the last Friday of the second preceding fortnight, as the Reserve Bank
may specify from time to time in a notification in the Official Gazette. These assets must be kept in
the manner specified in the notification (typically in cash, gold, and unencumbered government
securities).

• Open Market Operations (OMOs):

These include the Reserve Bank's complete purchase or sale of government securities to inject or
absorb long-term liquidity into the banking system.

STANCES OF THE MONETARY POLICY COMMITTEE

A viewpoint is referred to as a stance. The basic meaning of "standpoint" is "attitude toward a particular
issue," "point of view," "perspective/outlook," or "approach."

1. Accommodative - means that the central bank is willing to increase the money supply in order to
boost economic growth by lowering interest rates. During a period of accommodative policy, the
central bank is willing to lower interest rates. During the COVID-19 crisis, the Reserve Bank of
India (RBI) has taken an accommodative stance for the past two years to support the economy. When
inflation is not the immediate concern and growth require policy support, the central bank typically
adopts an accommodative policy.

2. Neutral - A "neutral stance" implies that the central bank has the option of raising or decreasing
interest rates. This position is normally embraced when the arrangement need is equivalent on both
 expansion and development. The central bank does not say whether it will raise or lower rates during
the neutral policy. Depending on the data that comes in, the interest rate can move either way. The
guidance suggests that the market can anticipate rate changes in either direction at any time.

3. Hawkish - A hawkish stance indicates that the primary objective of the central bank is to maintain
low inflation. The central bank is willing to raise interest rates during this time to reduce demand and
reduce the amount of money in circulation. Additionally, a hawkish policy suggests tight monetary
policy. During this time, a cut in interest rates is almost certain. When the central bank raises interest
rates or "tightens" monetary policy, banks also raise interest rates on loans to end-borrowers, which
reduces financial system demand.

4. Calibrated tightening - It is another term that the central bank frequently employs. A cut in the
repo rate is out of the question during the current rate cycle if the tightening is calibrated. However,
the rate increase will be calibrated. This indicates that although the central bank may not increase
rates at every policy meeting, the overall policy stance is geared toward raising rates. If the
circumstances call for it, this may also take place outside of the policy meetings.

REVIEW OF LITERATURE
There is a plethora of research on the effects of monetary policy. This research grows as new methods for
identifying exogenous monetary policy shocks are developed and as monetary policy implementation shifts
over time.

I will concentrate on a few recent cross-country studies of monetary policy transmission in India in this
section.
Mishra and Montiel (2012) look at the evidence regarding the usefulness of transmitting monetary policy
in developing nations. They come to the conclusion that, despite the literature's methodological issues,
monetary transmission appears to be weak in developing nations.
Mishra et al. (2014) found that bank lending rates respond to monetary policy shocks in a wide range of
countries, with a weaker transmission in developing nations.
Mohan (2008) provides a comprehensive analysis of Indian monetary policy, including the development of
the operating framework, liquidity management instruments, and reforms.
Sengupta (2014) used the vector autoregression (VAR) method to examine the various channels of
monetary transmission in India between 1993 and 2012. She discovers that the Liquidity Adjustment
Facility (LAF) introduced in 2000 caused a structural break in transmission, with the bank lending channel
remaining significant but the interest rate and asset price channels becoming stronger.
From March 20001 to June 2012, Singh (2011) estimates the pass-through from the policy rate to a variety
of short- and long-term market interest rates using a VAR model. He finds huge contemporary pass-through
under the shortage liquidity conditions as well as critical slacked impacts. A downside of this technique is
that, while It gauges the impact of changes in the strategy rate on other financing costs, it doesn't give a
reasonable feeling of the speed of transmission which is a component that approach creators should consider
while going with strategy rate choices.
Bhaumik et al. (2011), investigate the influence of bank ownership on banks' responses to monetary policy
between 2000 and 2007. The authors suggest that the bank lending channel of monetary policy is likely to be
more effective in tight money periods than in easy money periods by using the average prime lending rate
(PLR) of large banks as a proxy for the monetary policy rate and estimating the change in loans in response
to change in PLR during tight money periods. Since the creators utilize the excellent loaning pace of banks
themselves as the mark of financial strategy, be that as it may, they certainly expect total and fast pass-
through of changes in money-related approach to bank loaning rates, consequently missing a potential cost
reaction by banks to money related approach and looking just for an amount reaction.
OBJECTIVE OF STUDY
The primary objective of the entire study was:
 To understand the meaning of the monetary policy and its related aspects.
 To analyze the various monetary policy decisions undertaken by the central bank of our country to
stabilize the economy after it was hit by the pandemic followed by the global recession.
 To understand how the monetary policy decisions are made and the manner in which they impact the
economy of our country as whole

RESEARCH METHODOLOGY
Research means searching for things again to gain new insight of into same problem and in order to redefine
the research topic. The investigation involves the collection of the data through which one has to again
collect, organize and evaluate the data. To evaluate the data individual must have to ensure that the collected
data is accurate and reliable and to gather accurate data researcher must focus on the practical approaches
(techniques) that can be used and all these variables come under the horizon of research methodology

SOURCE OF DATA
The study was undertaken using the secondary data method. Both qualitative and quantitative data were
collected and analyzed in the context of the study objectives. Secondary data consulted for the preparation of
the project was collected from the official site of the Reserve Bank of India.

DATA COLLECTION PROCEDURE

The data was collected from the official reports published by the Reserve Bank of India. The resolutions
undertaken by the Monetary Policy Committee published on the RBI website describe the recent decisions
undertaken in order to regulate the flow of money in the economy. The same data has been carefully
analyzed in order to draw the necessary conclusions that explain the reasoning behind these decisions.
Apart from this, data collection was mostly aided by personal observations. The observation survey turned
out to be a practical way for me to get important information on the subject of my research. The survey was
additionally validated using a few secondary sources of data. The majority of the secondary data was
gathered from relevant internet websites.
 AN ANALYSIS OF RECENT MONETARY POLICIES

STATE OF ECONOMY BEFORE THE ANALYSIS PERIOD

(TILL MARCH 2022)
During the month of March, the global economic environment entered a bad phase. The global and Indian
growth and inflation prospects were dimmed by the escalating geopolitical situation. A perfect storm of
persistent global supply chain disruptions, rising energy and input costs, and tighter labor markets all
contribute to concerns about increased global financial and commodity market volatility.
Omicron wave headwinds, prolonged global supply chain disruptions, persistent container shortages, multi-
decadal inflation highs in major advanced economies, and escalating geopolitical tensions all contributed to
a significant decline in global economic prospects. Unrefined petroleum costs at first declined in late
November 2021 directly following the Omicron wave and the normal decrease popular; Since then, demand
for crude oil has increased with the decline of Omicron infections, while supply has remained weak due to
the Organization of the Petroleum Exporting Countries (OPEC)'s persistent underperformance in
comparison to targets, a muted shale response, multi-year low oil inventories, shrinking spare capacity, and
developments involving Russia and Ukraine.
The data on global crude oil prices are presented in chart 1.1.

The Organization for Economic Co-operation and Development (OECD) says that the rise in commodity
prices and volatility in the financial markets since the escalation of geopolitical tensions in February could,
if it continues, cause global GDP growth to slow by more than one percentage point in the first year and
cause global consumer price inflation to rise by about 2.5 percentage points; the result misfortunes could be
higher in the event of additional approvals, buyer and business blacklists, disturbances to delivery and air
traffic, the inaccessibility of key items from Russia, exchange limitations, for example, send out prohibitions
on food wares, and sabotaged purchaser certainty.
After decreasing to 4.3% in September 2021, CPI inflation increased to 6.1% in February 2022 due to an
increase in food inflation.The chart below shows the data on inflation expectations.
Manufacturing firms polled in the January-March 2022 round of the Reserve Bank’s industrial outlook
survey expected an increase in their input costs and selling prices. Service and infrastructure sector
companies expected moderation in the pace of increase in input costs and selling prices.

The exacerbating geopolitical developments, the accompanying sharp rise in global commodity prices, and
the weakening global growth outlook significantly hampered economic activity, which was recovering with
the waning of the third wave, rapid progress toward universal vaccination, and supportive fiscal and
monetary policies.
Real GDP expansion was anticipated to be 7.2% in 2022-23 based on the baseline assumptions, which
included crude oil (Indian basket) at US$ 100 per barrel, survey indicators, and model projections.
The GDP projection for the upcoming year is shown on the left, and consumer confidence is shown on the
right.
Consumer confidence (the current situation index) rose in the March 2022 survey round, although it
remained in the pessimistic zone. For the year ahead, consumers’ optimism strengthened further on the back
of improved sentiments on the general economic situation, employment and household income.

Taking into consideration all the recent developments, the MPC’s meeting since March
2022 made some important decisions.

SESSION ON 6th, 7th AND 8th APRIL 2022

The session took place on April 6, 7, and 8. The strategy was designed to be both cautious and proactive in
minimizing the negative impact on India's growth in light of the recent escalation of geopolitical tensions
brought on by the Russia-Ukraine War. Aside from that, the primary objective was to rebalance the liquidity
conditions following the pandemic.

MONETARY POLICY DECISIONS

REPO RATE AT 4% - The MPC decided to keep the repo rate at 4% in order to maintain the economy's
money supply. The government reduced the repo rate during the COVID era to support the economy and
provide sufficient liquidity for the economy's smooth operation. The repo rate has remained at 4% ever
since.
SDF AT 3.75%, MSF AND BANK RATE AT 4.25% - The SDF rate will be 25 bps underneath the
strategy rate, and it will be relevant to expedite stores at this stage. The MSF rate will keep on being 25 bps
over the strategy repo rate. As a result, the LAF corridor's width is restored to its pre-pandemic
configuration of 50 bps, symmetrically centered around the policy repo rate, which will be in the corridor's
center.

STANCE - The Reserve Bank of India made the decision to maintain its accommodative stance while
concentrating on the removal of accommodation in order to guarantee that inflation will continue to be
within the target range going forward and to encourage growth. The central bank was well aware that the
system was overflowing with liquidity and needed to gradually tighten it.

LIQUIDITY - Framework liquidity stayed in enormous excess, with normal day-to-day assimilation
(through both the fixed and variable rate switch repos) under the LAF at ₹7.5 lakh crore in Spring, possibly
lower than ₹7.8 lakh crore in January-February 2022. On April 1, 2022, reserve money increased by 10.9
percent. Cash supply (M3) and bank credit by business banks rose by 8.7 percent and 9.6 percent, separately,
as on Walk 25, 2022.

GROWTH AT 7.2 % - In the most recent quarter, real GDP increased by 8.9 % in 2021 and 2022,
indicating that the Indian economy was slowly recovering from its contraction caused by the pandemic.
Household optimism had grown, and consumer confidence was rising. Additionally, business confidence
was optimistic and in favor of revival. PMIs for services and manufacturing remained in the expansion zone.
Increasing geopolitical tensions cast a shadow over our economic outlook as the horizon got brighter. Risks
to our GDP growth were posed by financial market volatility caused by monetary policy normalization
(tightening MP stance by increasing rates) in advanced economies, recurrence of COVID-19 infections in
some major nations, and prolonged shortages of critical inputs like semiconductors and chips. The GDP is
expected to grow by 7.2%.

GROWTH AT 5.7 % - On the food cost front, a reasonable record Rabi gather assisted with holding
homegrown costs of grains and heartbeats in line yet worldwide factors, for example, the deficiency of
wheat supply from the Dark Ocean district could put a story under homegrown wheat costs. Due to global
supply shortages, pressures on edible oil prices and feed costs may persist, which may also have an effect on
poultry, milk, and dairy products’ prices.
When it comes to things that aren't food, the rise in international crude oil prices since the end of February
has both direct and indirect effects that could push inflation up. Global crude oil prices briefly surpassed
US$130 per barrel, reaching their highest level since 2008. Despite some corrections, they remain volatile at
elevated levels. It is likely that financial markets will remain volatile. As a result, inflation is anticipated to
reach 5.7% in 2022 and 2023.

FOREIGN EXCHANGE - India's merchandise exports grew strongly in 2021 and 2022, exceeding the
target of US$ 400 billion, despite the worsening global supply shocks slowing the global economy's
recovery. In addition, a sharp rise in imports and a widening of trade and current account deficits have
occurred as a result of a sharp rise in international commodity prices and a recovery in domestic demand.
We anticipate that the current account deficit will remain at levels that are sustainable and can be financed
by normal capital flows, despite the sharp rise in the prices of crude oil and other commodities.
Generally speaking, our outer area pointers stay sound and stand at US$ 606.5 billion as on April 1, 2022
which is additionally reinforced by the net forward resources of the RBI.

ADDITIONAL MEASURES
• Individual Housing Loans - In October 2020, the risk weights for individual housing loans were
rationalized by linking them solely to loan-to-value (LTV) ratios for all new housing loans approved until
March 31, 2022. In light of the significance of the housing industry and the multiplier effects it has, it has
been decided to extend these guidelines' validity until March 31, 2023. This will make it easier to get
individual housing loans with more credit.
• Interoperable Card-less Cash Withdrawal at ATMs - At the moment, only a few banks offer the facility
of card-less cash withdrawal from ATMs. The UPI • Bharat Bill Payment System (BBPS), an interoperable
platform for bill payments, has seen an increase in the volume of bill payments and billers over the years. At
this time, it is proposed to make card-less cash withdrawal facilities available across all banks and ATM
networks. It is proposed to reduce the net worth requirement for such entities from 100 crore to 25 crore in
order to further facilitate a greater penetration of bill payments through the BBPS and encourage the
participation of a greater number of non-bank Bharat Bill Payment Operating Units in the BBPS.

SESSION ON 2nd AND 4th MAY, 2022

As the conflict draws on and sanctions and retaliatory activities escalate, deficiencies, unpredictability in
ware and monetary business sectors, supply separations, and, most alarmingly, persevering and spreading
inflationary tensions have become more intense as time passes. In light of this, the Monetary Policy
Committee (MPC) decided to hold an off-cycle meeting on May 2 and 4, 2022, to re-evaluate the changing
dynamics of inflation and growth and the impact of events since the MPC meeting on April 6-8, 2022.

MONETARY POLICY DECISIONS

REPO RATE AT 4.40% - The MPC unanimously approved raising the policy repo rate to 4.40%
immediately.

SDF AT 4.15%, MSF AND BANK RATE AT 4.65% - The standing deposit facility (SDF) rate has been
adjusted to 4.15 percent, with MSF and the bank rate at 4.65 percent. as well as the Bank Rate and the
marginal standing facility (MSF) rate to 4.65 percent.
STANCE - The MPC decided once more to remain accommodative while focusing on the removal of
accommodative measures in order to keep inflation within the target range going forward and to encourage
growth.

LIQUIDITY - In accordance with the change in the monetary policy stance, a number of liquidity
management measures were implemented in April. These measures included reestablishing a symmetric
LAF corridor around the policy repo rate and introducing the standing deposit facility (SDF).

INFLATION - The persistence of food price pressures is shown by high-frequency price indicators for
April. Food price pressures are likely to persist in the future. Domestic prices are being impacted by spill
overs from global shortages of wheat, despite the fact that domestic supply remains adequate. Due to export
restrictions imposed by key oil-producing nations and the war's reduction in sunflower oil production, edible
oil prices may rise further. Prices for poultry, milk, and dairy products are rising as a result of rising feed
costs. Domestic pump prices are being impacted as a result of international crude oil prices remaining above
US$ 100 per barrel. In conclusion, the upward risks to the inflation trajectory outlined in the April MPC
resolution stem from the intensification of inflationary impulses and the persistence of negative global price
shocks.

EXTERNAL SECTOR - Despite significant global headwinds, India's external sector has remained
resilient. In April 2022, India's exports of goods remained robust, while its exports of services reached a new
high in March 2022. Potential market open doors have opened up because of international circumstances and
late economic alliances. Major information technology (IT) companies' optimistic revenue guidance also
bodes well for the outlook for the external sector as a whole in 2022 and 2023. The current account deficit
may be affected in 2022 and 2023 by the worsening terms of trade caused by higher commodity prices, but it
is anticipated to be comfortably financed. Net unfamiliar direct venture streams have stayed powerful,
notwithstanding some new control. At 20%, the ratio of external debt to GDP remains low.

SESSION ON 6th, 7th AND 8th JUNE 2022

The current disruptions in the supply chain are being made worse by ever-increasing difficulties. Therefore,
food, energy, and ware costs stay raised. Inflation has reached decadal highs and demand-supply imbalances
have persisted across the globe. Inflation has spread across the globe as a result of the war. Central banks are
reorienting and recalibrating their monetary policies, which is not surprising.
The Indian economy has remained resilient throughout these trying times thanks to solid macroeconomic
fundamentals and buffers. Despite the war and pandemic, the recovery is moving forward. Then again,
expansion has steeply expanded a lot of past the upper resilience level.

MONETARY POLICY DECISIONS

REPO RATE AT 4.90% - The Monetary Policy Committee (MPC) unanimously approved an immediate
50 basis point increase in the policy repo rate to 4.90%.

SDF AT 4.65%, MSF AND BANK RATE AT 5.15% - The standing deposit facility (SDF) rate has been
adjusted to 4.65 percent, with MSF and the bank rate at 5.15 percent. as well as the Bank Rate and the
marginal standing facility (MSF) rate to 5.15 percent.

STANCE - The MPC also decided unanimously to keep its focus on removing room for growth and keeping
inflation within the target range.

LIQUIDITY- Systemic liquidity has decreased recently in line with the MPC resolutions of April and
May's emphasis on the gradual withdrawal of accommodation. At 5.5 lakh crore from May 4 to May 31, the
average daily absorption under the liquidity adjustment facility (LAF), also known as the absorption under
the SDF and the variable rate reverse repo (VRRR), was lower than the 7.4 lakh crore from April 8 to May
3, 2022.
However, overnight money market rates have been trading below the policy repo rate on average due to the
excess liquidity. After the rate hike in May, interest rates on 91-day Treasury bills, commercial papers
(CPs), and certificates of deposit (CDs) strengthened at the longer end of the money market term structure.
Additionally, yields on AAA-rated 5-year corporate bonds have increased. The rate climb additionally set
off a vertical change in the benchmark loaning rates by banks. The term store paces of banks have expanded
and will expand stable subsidizing assets in the midst of expanding credit interest.

GROWTH RATE OF 7.2% - Rural demand is gradually improving while urban demand is recovering.
Limit use is additionally prone to increment further in 2022-23. Speculation movement is subsequently
expected to reinforce, driven by rising limit use, the government's capex push, and deleveraged corporate
accounting reports. Demand for bank credit has increased and capital goods imports have continued to rise
as a result of investment activity. For the fifteenth month in a row, merchandise exports have grown by
double digits, and imports of non-oil goods other than gold have grown at a rapid rate, indicating a recovery
in domestic demand.
The estimate of a typical southwest storm ought to support kharif planting and horticultural results. Rural
consumption will benefit from this. It is anticipated that the rise in contact-intensive services will maintain
urban consumption. Our initial surveys' preliminary findings indicate that business sentiment is still positive.
In any case, the negative overflows from international strains; increased costs for international commodities;
rising information costs; global financial conditions become more rigid; and the global economy's slowdown
continues to influence the outlook. Real GDP growth for 2022-23 remains at 7.2%.

INFLATION AT 6.7% - In April, headline CPI inflation reached 7.8%, a further sharp increase. Inflation
reached or exceeded the upper tolerance level of 6% for the fourth month in a row. All major categories
experienced an increase in headline inflation.
Global commodity prices have continued to rise across the board as a result of the prolonged war in Europe
and the sanctions that came with it. Concerns about stagflation are growing worldwide, which is increasing
the volatility of global financial markets. The outlook is further clouded by this, which is feeding back into
the actual economy. Widespread inflationary pressures continue to be largely driven by negative supply
shocks. Through the first three quarters of 2022-23, the MPC stated that inflation is likely to remain above
the upper tolerance band of 6%.
In this context, the government's supply-side measures of lowering excise duties on gasoline and diesel,
among other things, would contribute to some relief from inflationary pressures. The MPC also
acknowledged that prolonged periods of high inflation could destabilize inflation expectations and cause
effects in the second round. As a result, it concluded that additional monetary policy measures are required
to stabilize inflation expectations.

EXTERNAL SECTOR - Despite a weaker recovery among India's major trading partners, the export sector
has performed exceptionally well. Exports of petroleum products, which have also benefited from improved
price realizations in recent months, have partially offset the impact of rising crude oil prices on the
petroleum, oil, and lubricants (POL) import bill. Idealism on products of the two labor and products and
settlements ought to assist with containing the ongoing record shortage (computer-aideddesign) at an
economical level, which can be funded by typical capital streams. India's foreign exchange reserves, which
were approximately US$ 601.1 billion as of June 3, 2022, were further bolstered by a healthy level of the
RBI's net forward assets.

SESSION ON THE 28TH, 29TH, AND 30TH OF SEPTEMBER 2022

The recent sharp rate hikes and the forward guidance regarding additional significant rate hikes have
resulted in a tightening of financial conditions, extreme volatility, and a reluctance to take risks. Across
nations, all financial market segments, including the equity, bond, and currency markets, are in turmoil. The
real economy and financial stability may be affected by the nervousness in the financial markets. A new
storm is approaching the global economy.
Regardless of this agitating worldwide climate, the Indian economy keeps on being tough. Macroeconomic
stability exists. With improved performance parameters, the financial system continues to function as before.
The nation has endured the shocks from Coronavirus and the contention in Ukraine. Our journey over the
past two and a half years and our unwavering determination to overcome the various obstacles give us the
confidence to face the next storm.

MONETARY POLICY DECISIONS

REPO RATE AT 5.9 % - The MPC concluded by a larger part of five individuals out of six to build the
strategy repo rate by 50 premise focuses to 5.9 percent, with quick impact.

SDF AT 5.65%, MSF AND BANK RATE AT 6.15% - The standing deposit facility (SDF) rate has been
adjusted to 5.65 percent, with the bank rate at 6.15 percent and the MSF rate at 6.15 percent. as well as the
Bank Rate and the marginal standing facility (MSF) rate to 6.15 percent.

STANCE - The MPC likewise concluded by a larger part of 5 out of 6 individuals to stay zeroed in on
withdrawal of convenience to guarantee that expansion stays inside the objective going ahead, while
supporting development. The MPC was of the opinion that the persistence of high inflation necessitated a
more carefully calibrated withdrawal of monetary accommodation to limit the expansion of price pressures,
stabilize inflation expectations, and contain the effects of the second round. The potential for medium-term
growth will be bolstered by this action.

LIQUIDITY - In September 2022 (up until September 28), the average daily net absorption under the LAF
was 1.1 lakh crore, indicating that liquidity remained in surplus. The liquidity of the system will continue to
rise as government spending increases as a result of high direct tax and GST collections. As a result, the
inflation-adjusted policy rate is still below 2019 levels, even though the nominal policy repo rate has been
raised by 190 basis points so far (including today's increase). As a result, the overall monetary and liquidity
conditions continue to be accommodative, and the MPC decided to keep its focus on removing
accommodation.
Average daily absorptions under the liquidity adjustment facility (LAF)—both SDF and variable rate reverse
repo (VRRR) auctions—show that excess liquidity in the banking system has decreased to 2.3 lakh crore
from 3.8 lakh crore in June and July.

GROWTH AT 7.0% - Despite the difficult global environment, India's economy remains stable. For the
second quarter, high-frequency data suggest that economic activity is still resilient. The private consumption
market has held up. Urban demand is also experiencing a sustained revival. Rural demand is also steadily
rising. The robust growth of domestic production and imports of capital goods in July and August indicate
that investment demand is rising.
The agricultural sector continues to be resilient on the supply side. The first advance estimate for the
production of kharif foodgrains is only 0.4% lower than the first advance estimate for the previous year.
However, India's manufacturing purchasing managers index (PMI) reached 56.2 in August, indicating
sustained expansion. The manufacturing PMI showed an improvement in business sentiment, with optimism
at its highest level in six years.
Real GDP growth of 7.0 percent is anticipated for the years 2022 and 2023 after taking into account all of
these aspects.

INFLATION AT 6.7% - Due to significant negative supply shocks, some firming of domestic demand,
and spill overs from global financial markets, consumer price inflation remains elevated and above the
target's upper tolerance band. In August, inflation increased slightly from 6.7% in July to 7.0%.
Due to government actions and improved supply from key producing nations, edible oil price pressures are
likely to remain contained. Food prices also face upside risks. Due to the likely lower production of kharif
paddy, cereal prices are shifting from wheat to rice. The lower planting for kharif heartbeats could likewise
cause a few tensions.

EXTERNAL SECTOR - The trade deficit and current account deficit (CAD) for Q1:2022-23 are estimated
to be 8.1% of GDP and 2.8% of GDP, respectively. Different proactive factors, including worldwide PMIs,
highlight the debilitating of worldwide development energy and drawback dangers to worldwide exchange.
Despite a slowdown in import growth5, export growth outpaced import growth in India. As a result, in July
and August of 2022, the trade deficit remained high. Administrations sends out kept on developing at a
powerful speed in the midst of strong interest in programming and business administrations and humble
recuperation in movement administrations. In the months of April through June of this year, exports of
services expanded at a robust rate of 35.4% (y-o-y) on a balance of payments (BOP) basis, according to data
that were released yesterday. Remittances increased by 22.6 percent during the same time period. It is
anticipated that the larger trade deficit will be partially offset by the services export net surplus.
From the perspective of external financing, net foreign direct investment (FDI) increased to US$ 18.9 billion
from US$ 13.1 billion in April-July 2022. After being absent for nine months in a row, foreign portfolio
investors (FPIs) have returned to the domestic market with a net inflow of US$ 7.5 billion between July and
September.

ANALYSIS OF THE ECONOMY AFTER SIX MONTHS OF

POLICY CHANGES SINCE MARCH

The MPC met four times between April and September 2022, including a May 2022 off-cycle meeting. Due
to the sharp rise in international commodity prices and uncertainty regarding the pace of global monetary
policy normalization at the time of the MPC meeting in April 2022, the global economic and financial
environment had become challenging. In January and February of 2022, CPI inflation was at or above the
upper limit of 6% for two consecutive months. According to the MPC, significant upside and downside risks
to domestic growth and inflation were posed by the escalation of geopolitical tensions, generalized
hardening of global commodity prices, the possibility of prolonged supply chain disruptions, dislocations in
trade and capital flows, divergent monetary policy responses, and volatility in global financial markets.
By the middle of June, Brent crude oil prices had strengthened to US$ 121 per barrel as a result of supply
concerns brought on by Russia sanctions. Similar to the April MPR baseline, crude prices (Indian basket)
were assumed to be $100 per barrel in the baseline.

The CPI inflation print of March 2022 rose sharply to 7 per cent and posed significant upside risks to the
near-term trajectory from higher food, crude oil and commodity prices. By the June 2022 MPC meeting,
CPI inflation had risen further to 7.8 per cent in the April 2022 print, with considerable uncertainty around
the outlook on account of the geopolitical situation.
At the time of the MPC’s August 2022 meeting, CPI inflation had eased to 7 per cent during May-June
2022 from 7.8 per cent in April but remained above the upper tolerance threshold of 6 per cent. The MPC
observed that while there was some let up in global commodity prices, spill overs from geopolitical shocks
were imparting considerable uncertainty to the inflation trajectory. Domestic economic activity was seen as
resilient. With inflation projected to remain above the upper tolerance level of 6 per cent through the first
three quarters of 2022-23, entailing the risk of destabilising inflation expectations and triggering second
round effects, the MPC was of the view that further calibrated monetary policy action was needed to
contain inflationary pressures, pull back headline inflation within the tolerance band closer to the target, and
keep inflation expectations anchored to ensure sustained growth. Accordingly, the MPC unanimously
decided to increase the repo rate by 50 basis points and maintained its stance of June 2022 with a majority
of 5 to 1.

Ebbing COVID-19 infections and improving consumer sentiment facilitated a rebound in demand for
contact-intensive services and supported domestic demand. Industry and services sectors are holding up
well and kharif sowing has seen a smart recovery. The above-normal south-west monsoon has improved
reservoir levels which bodes well for the winter crops. Investment activity is expected to benefit from the
government’s capex push, growth in bank credit, improving demand conditions and rising capacity
utilisation. Geopolitical tensions, the upsurge in global financial market volatility and tightening global
financial conditions, however, weigh heavily on the outlook.

Turning to the key messages from forward-looking surveys, consumer confidence (the current situation
index) increased further in the September 2022 survey round on account of improved perception on general
economic situation and overall spending, though overall confidence remained in the pessimistic zone.
Households remained optimistic for the year ahead, with the future expectations index remaining
unchanged vis-à-vis the July 2022 survey round.

SESSION ON 5th, 6th AND 7th DECEMBER 2022

The global economy is still marred by profound shocks and unprecedented uncertainty as we approach the
end of yet another turbulent year. More than a third of the global economy is expected to shrink this year or
next, according to the IMF's forecast. The Indian economy maintains its resilience in this hostile
international environment by drawing strength from its macroeconomic fundamentals.

MONETARY POLICY DECISIONS

REPO RATE AT 6.25 % - The MPC decided, with immediate effect, to increase the policy repo rate by 35
basis points to 6.25 % by a majority vote of five out of six members.

SDF AT 6%, MSF AND BANK RATE AT 6.50% - Standing deposit facility (SDF) rate at 6%, bank rate
at 6.50%, and marginal standing facility (MSF) rate at 6.50% - As a result, the standing deposit facility
(SDF) rate remains at 6%, while the marginal standing facility (MSF) rate and the bank rate remain at
6.50%.

STANCE - The MPC also decided, by a vote of 4 to 6, to keep focusing on the withdrawal of
accommodation to keep inflation within the target range going forward and to help growth.

LIQUIDITY - In the coming months, liquidity conditions are likely to improve as a result of a number of
factors, including a moderate increase in the amount of currency in circulation following the festival, an
increase in government expenditure during the last few months of the fiscal year, and increased forex
inflows as a result of portfolio investors' return. Currency demand and tax outflows do occasionally result in
brief periods of tight liquidity, but a broader perspective is required. To meet the needs of the economy's
productive sectors, I reiterate that the Reserve Bank's liquidity management operations remain agile and
adaptable. As a result, despite the Reserve Bank's continued absorption mode, we are prepared to carry out
LAF operations that inject liquidity into our main operations as required. In doing as such, in any case, we
will search for a sturdy indication of a turn in the liquidity cycle when banks draw down an enormous piece
of their standing store office (SDF) and variable rate switch repo (VRRR) balances. Market participants
must wean themselves away from the excess of liquidity surpluses, but the Reserve Bank remains committed
to flexibility and two-sidedness in liquidity operations.

GROWTH - In the second quarter of 2022 and the third quarter of 2023, the real gross domestic product
(GDP) increased by 6.3% year-over-year (y-o-y), primarily due to private consumption and investment, as
reported by the National Statistical Office (NSO). This fulfills our expectations.
Going into Q3:2022-23, financial action kept on acquiring strength in October. The sustained recovery in
discretionary spending, particularly on services like travel, tourism, and hospitality, contributed to the
further strengthening of urban consumption. Traveler vehicle deals and homegrown air traveler traffic
posted strong development. With rising farm activity, tractor and retail two-wheeler sales indicate that rural
demand is recovering. Venture action is additionally building up momentum.
The agricultural sector continues to be resilient on the supply side. Rabi sowing began successfully. The
region planted so far is 6.8 percent higher than the ordinary planted region (as on December 2, 2022). From
55.3 in October to 55.7 in November, the manufacturing PMI increased. The services sector's PMI rose to
56.4 in November from 55.1 in October. In addition, India's November manufacturing and services PMIs
rank among the highest in the world. After the south-west monsoon has ended, construction activity is
picking up, as evidenced by an increase in steel consumption in October.
INFLATION - As anticipated, consumer price inflation eased in October to 6.8% (y-o-y), but it remains
above the target's upper tolerance band. Stickiness in core inflation is evident. It is anticipated that headline
inflation will rise above the target throughout the remainder of the year and the first quarter of 2023-2024.
Geopolitical tensions, market volatility, and an increasing number of weather-related disruptions pose
additional risks to the medium-term inflation outlook.
With the usual softening of the winter and the possibility of a plentiful rabi harvest, food inflation is likely to
ease in the future. However, the prices of cereals, milk, and spices will continue to exert pressure in the near
future. The main danger is that core inflation—CPI minus food and fuel—will continue to rise. In general,
the CPI cost energy stays high. Gambles from unfavorable climate occasions add to vulnerability in the
standpoint.

SESSION ON 6th, 7th AND 8th FEBRUARY 2022

The year 2023 marks the 75th anniversary of the Reserve Bank's public ownership and its establishment as a
national institution. Due to multiple shocks, the last three years have been unusually challenging. In the
years leading up to COVID-19, we built up buffers in the form of reserves and inflation that averaged close
to target to deal with these repeated shocks. Throughout this trying time, our constant goal has been to take
timely and efficient measures. It is encouraging to see that our strategies have been successful.

MONETARY POLICY DECISIONS

REPO RATE AT 6.5% - The MPC decided, with immediate effect, by a vote of 4 out of 6 members to
raise the policy repo rate by 25 basis points to 6.50%.

SDF AT 6.25%, MSF AND BANK RATE AT 6.75% - The standing deposit facility (SDF) rate was
revised to 6.25 percent, with the bank rate at 6.25 percent and the MSF rate at 6.75 percent. also, the
minimal standing office (MSF) rate and the Bank Rate to 6.75 percent.

STANCE - The MPC also decided, by a vote of 4 to 6, to keep focusing on the withdrawal of
accommodation to keep inflation within the target range going forward and to help growth.

LIQUIDITY - System liquidity is still in surplus, albeit to a lesser extent than in April 2022. The Reserve
Bank will continue to be adaptable and responsive in order to meet the economy's productive needs. We will
carry out business on either side of the LAF, depending on how the liquidity situation is changing.
It was also decided to restore the Government Securities market's hours to those of before the pandemic,
which were 9 a.m. to 5 p.m.8. Additionally, as part of our ongoing effort to further develop the Government
Securities Market, we propose to permit lending and borrowing of G-secs. The G-sec market will also
benefit from this measure's liquidity and depth; facilitate effective price discovery; and work toward the
smooth completion of the central government's and state governments' market borrowing program.

GROWTH RATE - India's real gross domestic product (GDP) growth was estimated to be 7.0 percent year-
on-year (y-o-y) by the National Statistical Office (NSO) on January 6, 2023, driven by private consumption
and investment. Gross value added (GVA) was estimated to be 6.7% on the supply side.
Despite a slight decrease from the previous month, manufacturing and service purchasing managers' indices
(PMIs) continued to rise in January. Strong discretionary spending has maintained domestic demand. The
metropolitan interest displayed strength as reflected in solid traveller vehicle deals and homegrown air
traveler traffic. Demand in rural areas is rising. Speculation action is step by step making strides. Non-oil
non-gold imports extended in December. On the other hand, in December, merchandise exports decreased
due to weak global demand.

INFLATION - Shopper cost expansion in India moved beneath the upper resistance level during
November-December 2022, driven by areas of strength for an in costs of vegetables. However, core inflation
continues to be stubborn. Looking forward, while expansion is supposed to direct in 2023-24, it is probably
going to administer over the 4% objective.
On the back of double-digit deflation in vegetable prices, CPI headline inflation decreased to 5.7% (y-o-y) in
December 2022, from 5.9% in November. On the other hand, cereals, protein-based foods, and spices were
particularly hard hit by inflation. Kerosene prices were primarily to blame for the slight increase in fuel
inflation. In December, core CPI inflation—which excludes food and fuel—climbed to 6.1% as a result of
persistent price increases in personal care and effects, education, and health care.

EXTERNAL SECTOR - Our merchandise exports are being impacted by the sluggish global demand.
Imports of merchandise are also slowing down. India's inherent buffers must also be taken into account.
Between April and October of 2022, the growth of services exports, primarily driven by software, business,
and travel services, remained robust at 29.1%. With an increase in activity in the Middle East, the outlook is
positive and remittances are reaching new heights. As per the most recent update of the World Bank, India's
settlements are assessed to develop by around 12% to US$ 100 billion of 2022 from US$ 89.4 billion out of
2021. Remittances to India increased by 22.6% year-over-year in the first quarter of 2022-23.
On the supporting side, net unfamiliar direct venture (FDI) streams have stayed powerful and rose to US $
22.7 billion during April-October 2022 from US$ 21.3 billion in the comparison period last year. Recent
months have seen a resumption of foreign portfolio flows, which were positive at $11.8 billion from July to
December 5th, 2022, primarily driven by equity flows.

FINAL INTERPRETATION
As we can recall, during the COVID–19 pandemic, the repo rates were reduced in order to inject funds into
the economy by making borrowing less costly. We were going through a very tough situation and this
decision of RBI really aided the functioning of the economy. It kept the foundation of our economy robust
and secure by keeping the money flow undisturbed. Lower repo rates and government-aided funds saved us
from slipping into a serious recession. However, as we know, there are no gifts in this world. These
decisions resulted in a lot of excess liquidity in the economy.
The rising liquidity contributed to the inflationary pressure. Resultingly, the inflation levels were soaring
high in March 2022. While we were still struggling to overcome the damage done by the pandemic, the
economy of world was hit by another strong blow. The geopolitical tensions between the two major
countries derailed the economies once again. Nevertheless, our strong policy measures and resilience
protected us from damaging ourselves beyond repair.
The committee gradually started shifting its stance and began focussing on the withdrawal of
accommodation to curb inflation without lowering the growth rate. The MPC meetings came to the
conclusion of increasing the repo rate for the first time after two years in the emergency meeting held off-
cycle in May. The repo rate was increased to 4.90 % while still remaining accommodative. Such decisions
shows the kind of control monetary policies can have on the way money regulates in an economy. Increase
in repo rates curb the flow of liquidity by making borrowings costlier while an accommodative stance
provides flexibility to the flow of money. This makes the regulations efficient without being too stringent.
Controlled policy measures and a positive outlook helped up to get back on track in time as we approached
the end of 2022-23. The institution of a standing deposit facility (SDF) made things more effective and
came as a historic reform. We were able to restore the width of the policy corridor to its pre-pandemic
level; we raised the repo rate by 40 bps and the cash reserve ratio (CRR) by 50 bps in an off-cycle meeting
in May; we shifted the policy stance to focus on withdrawal of accommodation; we continued the rate
tightening cycle in every meeting of the MPC; and we adopted a nimble and flexible approach to liquidity
management by conducting both variable rate reverse repo (VRRR) and variable rate repo (VRR)
operations as per requirement. As a result of all these measures, the real policy rate has been nudged into
positive territory; the banking system has moved out of the vicious cycle of excess liquidity; inflation is
moderating; and economic growth continues to be resilient.
 CONCLUSION
The Indian economy is advancing steadily and is expected to be one of the ffastest-growingmajor economies
in the times ahead. Although GDP growth in India remains resilient and inflation is expected to moderate,
but the battle against inflation is not over. The last two years are a saga of our determined fight against the
daunting challenges posed by the pandemic and now the war. We rose to these challenges to safeguard the
economy and the financial system from a maelstrom of shocks. We now stand at a crucial juncture once
again. Pressure points from high and sticky core inflation and exposure of food inflation to international
factors and weather-related events do remain. While being watchful of the impact of our earlier monetary
policy actions, we need to keep an eye on the evolving inflation dynamics and be ready to act as may be
necessary. The actions that will be taken ahead are expected to be nimble and in the best interest of the
economy. The aspect of growth shall obviously be kept in mind. In meeting the challenges thrust upon us by
a hostile global environment, we should not lose sight of the task of improving the long-term potential of our
country. Green transition, reconfiguration of supply chains and logistics, production-linked incentive
schemes, digital banking and financial services, and innovative technologies offer immense opportunities for
the Indian economy.
These decisions shall be in consonance with the objective of achieving the medium-term target for consumer
price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
 Governor’s Statement: December 8, 2023

The years 2020 to 2023 will perhaps go down in history as the period of ‘Great Volatility’, comprising a host of black swan
events in quick succession. Core inflation continues to be sticky, impeding the last mile of disinflation. Major central banks
have kept rates on hold while refraining from forward guidance given the prevailing uncertainties. Financial markets remain
volatile in their quest for definitive signals about the future path of interest rates.
The real gross domestic product (GDP) growth for Q2 of the current financial year has exceeded all forecasts. The
fundamentals of the Indian economy remain strong with banks and corporates showing healthier balance sheets; fiscal
consolidation on course; external balance remaining eminently manageable; and forex reserves providing a cushion against
external shocks. These factors, combined with consumer and business optimism, are the best buffer against global shocks in
today’s uncertain world.

MPC Decisions
1. policy repo rate unchanged at 6.50 per cent - Since the last policy, CPI headline inflation moderated to 4.9 per cent in
October from 7.4 percent in July. The moderation was observed in all components of CPI – food, fuel and core (CPI
excluding food and fuel). There has been broad-based easing in core inflation which is indicative of successful
disinflation through monetary policy actions. The near-term outlook, however, is masked by risks to food inflation which
might lead to an inflation uptick in November and December. This needs to be watched for second-round effects, if any.
Domestic economic activity is holding up well as assessed in the previous MPC meetings and as reflected in the
Q2:2023-24 GDP growth. Against this backdrop, the MPC decided to keep the policy repo rate unchanged at 6.50
percent, but remain highly alert and prepared to undertake appropriate policy actions, as warranted. the MPC decided to
remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while
supporting growth.
2. the standing deposit facility (SDF) rate remains at 6.25 per cent
3. the marginal standing facility (MSF) rate
4. the Bank Rate at 6.75 per cent. The MPC also decided by a majority of 5 out of 6 members to remain focused on
withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

Assessment of Growth and Inflation

Global Growth
World trade is decelerating amidst global tide of protectionism. 1 Despite significant restoration of global supply
chains,2 factors like elevated debt levels, lingering geopolitical hostilities and extreme weather conditions aggravate the risks
to global growth and inflation outlook. Sovereign bond yields are softening as markets are not factoring in any further rate
hikes.
Domestic Growth
Economic activity exhibited buoyancy in Q2 aided by strong domestic demand. GDP posted a robust growth of 7.6 per cent in
Q2:2023-24, driven by investment and government consumption.3
On supply side, turning to Q3, two-thirds of rabi sowing has been completed despite the late harvest of Kharif crops in some
states.4 The Manufacturing sector gained strength with easing input cost pressures and pick up in demand conditions. 5 Eight
core industries recorded healthy growth in October and continued their high growth since June this year. 6 The purchasing
managers’ index (PMI) for manufacturing rose in November.7 The services sector buoyancy has remained intact as reflected in
high-frequency indicators.8 GST collections at ₹1.68 lakh crore in November 2023 were buoyant. 9 Services PMI displayed
healthy expansion in November.10
On the demand side, households’ consumption is supported by durable urban demand and a gradual turnaround in rural
demand as reflected in sales of fast-moving consumer goods (FMCG) and other indicators. 12 Festival-related demand is also
spurring households’ discretionary consumption in Q3. 13 Investment activity continues to be aided by buoyancy in public
sector capex.14 This is also reflected in the strong growth in steel consumption, cement production, and imports of capital
goods.15 Capacity utilization (CU) in the manufacturing sector continues to remain above the long-period
average.16 Investments in fixed assets by listed private manufacturing companies also registered healthy growth in H1:2023-
24, primarily driven by key industries such as petroleum, steel, chemicals, and cement. The total flow of resources to the
commercial sector from banks and other sources at ₹17.6 lakh crore during the current financial year so far is significantly
higher than that of last year (₹14.5 lakh crore). Despite weakness in external demand, both goods and services exports
returned to positive territory in October.17
Inflation
Food inflation, which was in double-digits in July, has since then moderated to 6.2 per cent in October with the correction in
vegetable prices.18 Fuel inflation slipped into deflation since September primarily reflecting the sharp fall in LPG prices in
end-August. The disinflation in core gathered momentum during September-October and reached levels last seen during
Q4:2019-20 due to the combined effect of policy rate increases and reduction in cost-push pressures across core goods and
services.
Going ahead, inflation outlook would be considerably influenced by uncertain food prices. High frequency food price
indicators point to an increase in prices of key vegetables which may push CPI inflation higher in the near-term. The ongoing
rabi sowing progress for key crops like wheat, spices and pulses needs to be closely monitored. Elevated global sugar prices is
also a matter of concern.
On the positive side, global commodity prices, particularly, agricultural commodity prices, have softened except rice. 19 For
highly import dependent food items like edible oils, international prices continue to remain soft. Domestic milk prices are
stabilising. Pro-active supply side interventions by the government are also containing domestic food price pressures. Crude
oil has softened considerably, though it may remain volatile. Taking into account these factors and on the assumption of
normal monsoons, CPI inflation is projected at 5.4 per cent for 2023-24, with Q3 at 5.6 per cent and Q4 at 5.2 per cent. CPI
inflation for Q1:2024-25 is projected at 5.2 per cent; Q2 at 4.0 per cent; and Q3 at 4.7 per cent. The risks are evenly balanced.
What do these Inflation and Growth Conditions mean for Monetary Policy?
14. We have made significant progress in bringing down inflation to below 5 per cent in October 2023 despite occasional
blips due to intermittent supply shocks. The summer of 2022 is behind us. Our policy of prioritising inflation over growth,
hiking policy rate by 250 basis points in a calibrated manner and draining out excess liquidity have worked well, alongside
supply-side measures taken by the government, to bring about this disinflation. The fact that core inflation has also trended
lower and household inflation expectations have become better anchored gives us the confidence and conviction that
monetary policy is doing its job.20 On the other hand, growth remains resilient and robust, surprising everyone on the upside.
15. Notwithstanding this progress, the target of 4.0 per cent CPI is yet to be reached and we have to stay the course. Headline
inflation continues to be volatile due to multiple supply side shocks which have become more frequent and intense. The
trajectory of food inflation needs to be closely monitored. Intermittent vegetable price shocks could once again push up
headline inflation in November and December. While monetary policy would look-through such one-off shocks, it has to stay
alert to the risk of such shocks becoming generalised and derailing the ongoing disinflation process. In the midst of these
uncertainties, monetary policy has to remain actively disinflationary to ensure a durable alignment of headline inflation to the
target rate of 4.0 per cent, while supporting growth.
Liquidity and Financial Market Conditions
16. Like most other central banks, the Reserve Bank had injected additional liquidity into the system to counter the COVID-
19 related onslaught on the economy. Consequently, the size of Reserve Bank’s balance sheet had expanded significantly.
Persistence of such expanded balance sheet far too long could have created macroeconomic and financial instability. It is
worth noting that the Reserve Bank has successfully reduced its balance sheet size well in time. Illustratively, the size of the
Reserve Bank’s balance sheet swelled to 28.6 per cent of GDP in 2020-21. With modulation in liquidity in the post COVID
period, the balance sheet size moderated to 23.3 per cent of GDP in 2022-23 and further to 21.6 per cent in the current
financial year (up to December 1).21 We consider this as a significant achievement.
17. System liquidity, as measured by the net position under the liquidity adjustment facility (LAF), turned into deficit mode
for the first time in September 2023 after a gap of nearly four and a half years since May 2019. Deficit liquidity conditions
persisted during October and November prompting large recourse to the marginal standing facility (MSF) by banks. 22 In
parallel, utilisation of the standing deposit facility (SDF) has also been high.23
18. The overall tightening of liquidity conditions is attributed mainly to higher currency leakage during the festive season,
government cash balances and Reserve Bank’s market operations. Driven by these autonomous factors, system liquidity
tightened significantly compared to what was envisaged in the October policy statement. Consequently, the need to undertake
auction of OMO sales has not arisen so far. The evolution of liquidity conditions has been in alignment with the monetary
policy stance. More recently, however, as government spending has picked up and system liquidity has got more evenly
balanced among market participants, pressures have eased and the net LAF position has evened out broadly. Going forward,
government spending is likely to further ease liquidity conditions. On our part, the Reserve Bank will remain nimble in
liquidity management.
19. Different segments of the financial market have witnessed monetary transmission of varying extent. Long-term G-sec
yields have softened, reflecting strong demand for these bonds from financial institutions and softening of global bond yields.
In the credit market, monetary policy transmission is still working its way through the system. 24
20. With regard to the standing facilities of the Reserve Bank under the LAF, we have noticed simultaneous high utilisation of
both MSF and SDF by the banks. This was pointed out in the last monetary policy statement. We propose to address this
situation and have decided to allow reversal of liquidity facilities under both SDF and MSF even during weekends and
holidays with effect from December 30, 2023.25 It is expected that this measure will facilitate better fund management by the
banks. This measure will be reviewed after six months or earlier, if needed.
21. The Indian rupee has exhibited low volatility compared to its EME peers in the calendar year 2023, despite elevated US
treasury yields and a stronger US dollar. 26 The relative stability of the Indian rupee reflects the improving macroeconomic
fundamentals of the Indian economy and its resilience in the face of formidable global tsunamis.
22. Recently, the Reserve Bank and the Bank of England have signed a Memorandum of Understanding on cooperation and
exchange of information relating to the Clearing Corporation of India Ltd (CCIL), a Central Counterparty (CCP), 27 regulated
and supervised by the Reserve Bank. The MOU will enable the Bank of England to assess CCIL for recognition as a third
country CCP for UK based banks to clear their transactions through CCIL. This MOU is based on principles of mutual
cooperation and trust among regulators of both the countries. We hope regulators of other jurisdictions also accept these
principles.
Financial Stability
23. Financial stability is a public good. The Reserve Bank judiciously uses micro and macro-prudential tools to safeguard
financial stability. The recent pre-emptive measures 28 taken by the Reserve Bank in respect of Banks and NBFCs were geared
towards addressing potential risks and preserving the resilience of the financial sector. 29 We do not wait for the house to catch
fire and then act. Prudence at all times should be the guiding philosophy, both for the regulators and the regulated entities.
External Sector
24. In October 2023, both merchandise exports and imports came back into the expansionary zone. Services exports remained
buoyant during Q2:2023-24. India has remained the top remittance-receiving country. 30 The net balance under services and
remittances is expected to partly offset India’s current account deficit and keep it within the parameters of viability.
25. On the financing side, foreign portfolio investment (FPI) flows have seen a significant turnaround in 2023-24 with net FPI
inflows of US$ 24.9 billion (up to December 6) as against net outflows in the preceding two years. 31 Net foreign direct
investment (FDI), on the other hand, moderated to US$ 10.4 billion in April-October 2023 from US$ 20.8 billion a year ago.
Net inflows under external commercial borrowings (ECBs) and non-resident deposit accounts are much higher than last
year.32 India’s external vulnerability indicators33 exhibit higher resilience in comparison with EME peers as well as since the
taper tantrum period. India’s foreign exchange reserves stood at US$ 604 billion as on December 1, 2023. We remain
confident of meeting our external financing requirements comfortably.
Additional Measures
26. I shall now announce certain additional measures.
Review of the Regulatory Framework for Hedging of Foreign Exchange Risks
27. The regulatory framework for foreign exchange derivative transactions was last reviewed in 2020. Based on market
developments and feedback received from market participants, the extant regulatory framework for forex derivative
transactions has been refined and consolidated under a single master direction. This will further deepen the forex derivatives
market by enhancing operational efficiency and ease of access for users.
Framework for Connected Lending
28. The extant guidelines on connected lending are limited in scope. It has been decided to come out with a unified regulatory
framework on connected lending for all regulated entities of the Reserve Bank. This will further strengthen the pricing and
management of credit by regulated entities.
Regulatory Framework for Web-Aggregation of Loan Products
29. The Reserve Bank had introduced the regulatory framework for digital lending in August/September 2022. The digital
lending ecosystem also comprises of services that aggregate loan offers from lenders (called web-aggregation of loan
products) for guidance of customers. Several concerns relating to such web-aggregation of loan products harming consumers’
interest have come to our notice. It has, therefore, been decided to lay down a regulatory framework for web-aggregation of
loan products. This is expected to result in enhanced customer centricity and transparency in digital lending.
Setting up of Fintech Repository
30. Financial entities like banks and NBFCs in India are increasingly partnering with Fintechs. For better understanding of
developments in the Fintech ecosystem and to support this sector, it is proposed to set-up a Fintech Repository. This will be
operationalised by the Reserve Bank Innovation Hub in April 2024 or earlier. FinTechs would be encouraged to provide
relevant information voluntarily to this Repository.
Enhancing UPI Transaction Limit for Specified Categories
31. The limit for various categories of UPI transactions has been reviewed from time to time. It is now proposed to enhance
the UPI transaction limit for payment to hospitals and educational institutions from ₹1 lakh to ₹5 lakh per transaction. This
will help the consumers to make UPI payments of higher amounts for education and healthcare purposes.
e-Mandates for recurring online transactions – Enhancement of limit for specified categories
32. e-Mandates for making payments of recurring nature have become popular among customers. Under this framework, an
additional factor of authentication (AFA) is currently required for recurring transactions exceeding ₹15,000. It is now
proposed to enhance this limit to ₹1 lakh per transaction for recurring payments of mutual fund subscriptions, insurance
premium subscriptions and credit card repayments. This measure will further accelerate the usage of e-mandates.
Establishment of Cloud Facility for the Financial Sector in India
33. Banks and financial entities are maintaining an ever-increasing volume of data. Many of them are utilising the cloud
facilities for this purpose. The Reserve Bank is working on establishing a cloud facility for the financial sector in India for this
purpose. Such facility would enhance data security, integrity and privacy. It would also facilitate better scalability and
business continuity. The cloud facility is intended to be rolled out in a calibrated fashion over the medium term.
Conclusion
34. In a global economy clouded by uncertainties, monetary policy actions and communication can be a stabilising force by
anchoring the expectations of economic agents. Clarity and consistency in action and communication is a time-tested principle
for effective monetary policy. Policy makers have to be mindful of the risk of being carried away by a few months of good
data or by the fact that CPI inflation has come within the target range. They have to be also mindful of the risk of
overtightening, especially when large structural changes, geopolitical and geoeconomic shifts are taking place. On top of this,
they have to be watchful of the risks from new shocks that could hit the economy from anywhere anytime.
35. We have now reached a stage when every action has to be thought through even more carefully to ensure overall
macroeconomic and financial stability; more so, because the conditions ahead could be fickle. We have to remain vigilant and
ready to act, as per the evolving outlook. India is better placed to withstand the uncertainties compared to many other
countries. As the Indian economy treads the path to a brighter future, I recall the wise words of Mahatma Gandhi: “Progress is
absolutely assured whenever there is …… an unalterable determination.”