“The issue of changing the monetary policy stance and withdrawal of accommodation till inflation falls to the desired level is like a chicken and egg question and that I want the chicken to decide,” the governor said jokingly, while addressing reporters at the post-policy presser, refusing to offer a guidance on the monetary policy stance.
While the market was expecting the delivered 25 basis points hike, which took the policy rate to 6.5 per cent, but was also expecting a hint from the RBI-MPC towards a pause given the fall in inflation for the past two months. The same was also expressed by two external members of the six-member MPC (Monetary Policy Committee).
Instead, the final monetary policy statement came out saying that MPC remains accommodative to support growth but at the same time also remains focused on withdrawal of accommodation, which Das described as the chicken and egg question and he wants the chicken to decide.
“We watch all the incoming data and data trends as well as the outlook on inflation apart from what is happening in the overall economy, and we take an appropriate decision at the appropriate time. Beyond that I will not be able to give any forward guidance, and we are quite open about it and there’s a reason for it: we don’t want to create unreasonable or unnecessary expectations in the market. Because sometimes it can become counterproductive,” the governor said.
“And to your repeated questions on if ever we will give a guidance on the policy stance, let me tell you currently our stance is a stance of optimism,” he said.
But both the governor and senior most deputy governor Michael Patra who heads the monetary policy department, were quick to underline that though inflation has begun to fall from November, core inflation remains sticky and that is an issue of concern. They went on to say that the moderation in vegetable prices in November and December more than offset the price momentum in cereals a few other items. “So we are examining all these components and the future trajectory of each of these components on month on month basis.”
In response to a question Das said, “The MPC has considered 25 bps as appropriate, taking into account where we are now, the mix of factors and the data that we have ahead of us. But data is always backward looking; so we have also looked at the outlook which is more forward looking. So, at the current juncture, the MPC has felt that a 25 bps of a moderate hike is warranted very much. So, this gives us the elbow room to assess the impact of the actions undertaken so far.”
The MPC has projected 6.4 per cent GDP growth and average inflation at 5.4 per cent for the next fiscal.
On whether 6.4 per cent GDP growth is too optimistic given many external headwinds along with the budget forecasting only 10 per cent nominal GDP growth — down from 15.5 per cent this year, Patra said, “We recognise that the global situation will result in net exports coming down. And therefore if you see FY24 relative to FY23, there is a deceleration from 7 per cent to 6.4 per cent.
On the tightening liquidity conditions — which has drastically come down from around Rs 8 lakh crore in April to around Rs 1.6 lakh crore amidst the high credit growth of 16.7 per cent in January and falling deposits, Patra said banks are using mix of sources to meet the liquidity by way of attracting higher priced deposits and also market borrowings apart from selling down their excess government bond holdings.
“Yes we know that mismatch in the CD ratio, which of late has been narrowing but it’s really up to banks to mobilise deposits and make up the gap, which they are doing through certificates of deposit and reducing their investments but they need to mobilize deposits on their own,” Patra said.
The RBI also expressed confidence in managing the higher government borrowing budgeted for next fiscal, saying the net increase is “not too big if we compared the numbers we managed in FY21 and FY22”.
“Market borrowing last year was considered high but it was actually lower than the previous two years. I think we are jumping the gun talking about it at this point of time. The market is deep enough now and I think we shouldn’t have any problem. In fact we are fairly confident of mobilizing government funds,” deputy governor T Rabi Sankar said.
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