RBI Notification

Key Takeaways from the RBI Governor’s Statement: December 7th 2022

The Governor of the country’s apex bank, Mr Shaktikanta Das, on Wednesday, December 7th 2022, issued a statement that sought to summarise the current economic trends and the apex banks initiative towards the upcoming 2023. This press release was aimed at highlighting the changes that the Reserve Bank of India seeks to prevent the catastrophe of the recession that is anticipated to land in the year 2023. The RBI Governor’s Statement has highlighted various vital points such as changing the repo rate, assessment of growth and Inflation, Condition and Liquidity of the financial market and the additional measures taken by the apex bank for the future ahead of the country. This piece of writing aims to highlight the key takeaways from the statement issued by the Governor and its impact on the regulatory and economic scenario of the country.   

Introduction

Mr Das highlighted the growth-oriented problems the world economies face, from the Ukraine war to Global Warming. All these events have a negative impact on the economic and financial conditions of the countries. These events have challenged economies around the globe in managing and operating their fiscal ecosystem. The depletion of the supply chain and rapid deglobalisation amongst countries across the world has also aggravated the problems such as poverty and homelessness in better parts of the world. The reasons for which through has been related to the ongoing conflict between massive powers, which has resulted in price shifting and depletion of a commodity in various parts of the world that have affected the poor sections of societies the most.

The Governor of the RBI has emphasised the resilience shown by India during these challenging times and added that the financial system of the country is robust and stable. The corporates and banks have made significant profits, but inflation has elevated due to the global issues highlighted in the RBI Governor’s Statement.

Decisions and Deliberations of the MPC

The Monetary Policy Committee constituted by the RBI met on the 5^th, 6^th and 7^th of December 2022 and assessed the country’s macroeconomic situation to reach out to the future prospects of the Indian economy. The points that were discussed are elucidated in the RBI Governor’s Statement as follows

• With a 5:1 ratio in favour of increasing the repo rate, the 6-member panel has decided to increase the repo rate by 35 basis points to 6.25.
• The Standing Deposit Facility has been adjusted to 6.00%
• The marginal standing facility rate and the bank rate have been changed to 6.50% to ensure that the inflammation shall remain within the target in the future.
• The excellent progress of Rabi Crop is also a factor that will be instrumental in creating a growth pattern for the Indian economy, the manufacturing sectors and rebound services will be influential in increasing the rural demand.
• Inflation shall remain above the 4% mark for at least 12 months.  

Assessment of Inflation and Growth

The RBI Governor’s Statement has elucidated the following statement concerning the country’s growth and inflation.

Growth

• National Statistics Organisation’s latest data revealed that a growth of 6.3% has been registered in the GDP in the 2^nd Quarter of 2022-23, which was driven [primarily by private consumption and investment.
• Urban Consumption in the 3^rd quarter has been remarkable, with a recovery in discretionary spending on services such as tourism, travel and hospitality.
• Passenger vehicle sales and Air traffic have been brought back to normal to record gains, and the rural demand for commercial vehicles has also soared during this tenure.
• On the supply side, the agriculture and construction sectors have been resilient, which the Rabi crop sowing regulated off to a strong.
• India will be the fastest growing amongst the major economies around the globe, with a projection of GDP growth of 7.1% in the first quarter and a projection of 5.9 % in Quarter 2 of FY 2022-23.

In the growth segment, the Governor has emphasised the fact that the global disturbance might act as a hindrance to the growth that is achieved by the country. Still, stable policies and an excellent regulatory environment will ensure that India will come out on top.

Inflation

Inflation will rise in the 2^nd and 3^rd quarter of the financial year 2023-24, and this projection has been backed by claims of global turmoil and Recession trends all over the world. The cropping season may boost the economy, but the winter will be effective at a certain level. The RBI has also mentioned that strengthening the Dollar around the globe will also impact the export and import industry. In the Governor’s Statement, it has been addressed that the apex bank is keeping a close eye on the inflation dynamics and will do anything necessary to sustain the system.

Financial market Conditions and Liquidity

• In The RBI Governor’s Statement, it is mentioned that the overall liquidity remains in Surplus, and it is further likely to improve due to various factors including but limited to moderation in currency circular, pick up in government expenditure and higher forex inflows due to return of portfolio investors.
• The RBI is committed to flexibility and two-sidedness in liquidity operations, but the market participants must accustom themselves to the changing trends in liquidity Surplus.
• To move towards normal liquidity operations, the market hours have been restored to 9:00 am to 5:00 pm to attain normalcy at the markets.
• As per the Governor, the Indian Rupee has performed well compared to its peers in this phase, where the dollar is appreciating at an unprecedented pace. This story of INR depicts the story of the Indian Rupee as a depiction of the fight and resilience shown by India in this era of economic downfall.  
• The Indian rupee must find its way and deal with this hurricane with confidence and endurance.

External Sector

RBI Governor’s Statement contained the following pointers for the External Sector

• In the strong headwinds in the global economy and the slowdown that has weighed down on our exports, the merchandise import is also decreasing. As per the RBI Governor, the deficit in the current account is more than 2021-22 but still manageable.
• On the financing side, the forex in India is substantial and manageable. The forex has grown from US $ 524 to US $ 561 from October 21st 2022, to December 5^th 2022, which is suitable for at least 9 months of imports in the country.
• India’s external debt ratios are low by international standards, and the credit for the same has been given to the liberal forex policy and the rapid impact of ECBs in the Indian Market.

Additional Measures: RBI Governor’s Statement

Following are some other measures as orated in the RBI Governor’s Statement

SLR Holdings in HTM (Held to mature) Category

With an aim to provide flexibility to the banks in managing their investment portfolios, the RNI has extended the dispensation of an enhanced HTM limit of 23% till march 2024. The HTM limits will be restored to the original 19.5 percent from June 30th 2024.

Enhancing Mandate of UPI

The capabilities of the UPI system have been upgraded by introducing a single block and multiple debit system. The users will be able to block funds in their accounts for specific purposes that will enhance the usage and ease of transactions in the digital markets. RBI Governor’s Statement has increased the effectiveness and efficiency of the Unified Payments Interface (UPI)^[1].

Expansion in the scope of the Bharat Bill Payment System (BBPS)

The RBI enhances the scope of BBPs to all categories of payments, both reoccurring and non-recurring. This will increase the viability of the BBPs system across the country to individuals and businesses who can benefit from the transparent payment experience, faster access to funds and improved efficiency.

Hedging of Gold in IFSC

The resident will now be permitted to hedge the price risk of their gold exposures in foreign markets. This move is intended to benefit the jewellers and other industries that seek gold as raw material.

RBI Governor’s Statement address was ended by hailing the resilience shown by the Indian market in a hostile outside atmosphere and listed the key changes that the countries must seek in the long run to avoid disruption in the country’s economic growth.

Conclusion

IRBI’s Governor Statement, Mr Shaktikant Das, has made announcements in his statement that will be applicable immediately, the headline being the 35 Basis Point increase in the Repo rate. The full submission is more than just rotating around one big announcement. Several other key considerations are also essential to understand the country’s standing in the current scenario. The global hostility has impacted the growth of the country. Still, we are a strong and resilient economy to take on the challenges that might await in the gloomy coming year. Mr Das has elaborated on the action plan, which will be fruitful in maintaining the line of defence that India has shown against the odds in this global recession. The Governor, as per the majority’s outtake, also commented on strengthening the US Dollar. He added that Indian  Rupee has performed exceptionally better than its competitors. The RBI Governor’s Statement also brought a few changes to the digital payment landscape, which are intended to work for the betterment of individuals and businesses all across the country.

Read Our Article: Highlights of RBI’s Monetary Policy 2022-23