RBI’s Liquidity Balancing Act! What’s Next?

RBI's Liquidity Balancing Act

Dive into RBI MPC’s Liquidity Strategy and Repo Rate Pause and understand what lies ahead.

The recent RBI Monetary Policy Committee (MPC) meeting, conducted from October 4 to 6, 2023, has once again resulted in a decision to maintain the status quo on the repo rate. This decision follows a period of substantial rate hikes between May 2022 and February 2023, which led to a total increase of 250 basis points, signifying a hawkish stance.

What makes this decision particularly noteworthy is the RBI’s commitment to pausing rate changes despite persistent signs of sticky inflation.

So, let’s delve into what happened during the RBI’s October MPC meeting and what lies ahead. 

What’s Happening?

In recent weeks, there have been a lot of global economic challenges, which posed a significant dilemma for the RBI’s monetary policy decision. 

The Federal Reserve’s hawkish stance, a strengthening US dollar, and surging US bond yields have created a complex economic landscape. These factors have raised concerns about the rising costs of imports due to the stronger dollar and the subsequent impact on inflation.

There has been a slight moderation in India’s inflation figures, but inflation remains stubbornly high. According to government data reported by the Economic Times, retail inflation in India eased to 6.83% in August, following a surge to 7.4% in July.

The chart shows the inflation trend of the last one year.

RBI Governor Shaktikanta Das has highlighted that a majority of five out of six members in the MPC (Monetary Policy Committee) also agreed on maintaining a focus on the ‘withdrawal of accommodation’. This approach aims to control rising prices (inflation) while also supporting economic growth.

Let’s turn our attention to food inflation. As you can see in the graph above, inflation in May and June 2023 was well within the RBI’s target range. However, in the RBI’s August MPC meeting, the governor pointed out that the rise in inflation was primarily due to food inflation. In the recent October MPC meeting, the governor mentioned this concern, highlighting the risks associated with lower sowing of certain kharif crops, reduced reservoir levels, and recurring instances of food price shocks. These factors can potentially exert upward pressure on inflation.

Few More Highlights of the RBI’s October MPC Meeting

Repo Rate: The RBI’s committee decided to keep the repo rate the same. This means the policy repo rate stays at 6.50%, the standing deposit facility (SDF) rate remains at 6.25%, and the marginal standing facility (MSF) rate and the bank rate remain at 6.7%.

Economic Growth: The RBI didn’t change its prediction for India’s economic growth in the coming year (FY24). They still expect it to be 6.5%, even though the Indian economy did well last year, growing at 7.8% in FY23. This cautious stance is because the global economy is uncertain due to rising interest rates in other countries.

Liquidity Management: This RBI MPC meeting gave a lot more focus to liquidity management. You see, having too much money in the economy can cause problems. Hence, they made changes in September to control the extra liquidity caused by deposits of Rs 2,000 notes, and now they are taking more steps to manage it better.

Withdrawal of I-CRR: The RBI is ending a special rule called ‘incremental CRR’ (I-CRR) introduced in August 2023 to soak up extra money from banks. This will happen soon.

G-Sec OMO Sales: The RBI mentioned the possibility of selling government securities (G-Secs) to manage liquidity in the future, depending on how much money is in the system.

Card-on-File Tokenization (CoFT): The RBI MPC has proposed a new way to make online shopping safer and more convenient. This idea lets you easily generate security tokens for your payment cards when shopping online.

What’s Next?

The recent MPC meeting makes it evident that the RBI won’t be reducing interest rates anytime soon. The global economic situation is still uncertain, and the RBI wants to be cautious. They are keeping their options open and being careful, especially because the US Federal Reserve has hinted at raising rates by 25 basis points before taking a break.

We will get a better understanding of the RBI’s decisions when the minutes of the MPC meeting are published on October 20, 2023. The next policy statement, due on December 08, 2023, might provide more clarity on the RBI’s stance regarding interest rates.

That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!

*The article is for information purposes only. This is not an investment advice. 

*Disclaimer: https://tejimandi.com/disclaimer

Teji Mandi Multiplier Portfolio of high quality companies that blends shorter term tactical bets with long term winners Subscription Fee
Min. Investment
Teji Mandi Multiplier Portfolio

Teji Mandi Multiplier

Concentrated portfolio of fundamentally strong small & midcap stocks that are likely to show potential growth.


Min. Investment

Subscription Fee

Teji Mandi Flagship A basket of 15-20 long-term and tactical stocks that we regularly rebalance to adjust to the market conditions. Subscription Fee
Min. Investment
Teji mandi Flagship portfolio

Teji Mandi Flagship

A Multi-Cap portfolio of 15-20 stocks that consists of tactical bets and long-term winners that generate index-beating returns.


Min. Investment

Subscription Fee

Recommended Articles

"Register Your Interest"