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– The RBI kept the policy repo rate unchanged at 6.50 per cent, the reverse repo rate at 6.25 per cent, and the marginal standing facility (MSF) rate and the bank rate at 6.75 per cent⁴⁵.
– The RBI also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth⁵.
– The RBI revised its inflation projection for Q3:2023-24 to 6.5-7.0 per cent, and for Q4:2023-24 to 5.5-6.0 per cent, citing supply-side pressures and uncertain food prices⁵.
– The RBI maintained its real GDP growth projection for 2023-24 at 9.5 per cent, with risks broadly balanced⁵.
– The RBI announced several developmental and regulatory measures, such as extending the on-tap liquidity window for contact-intensive sectors, enhancing the limit for collateral-free loans to self-help groups, and introducing a centralised payment system for non-bank payment system operators⁵.

The decision on different parameters govern by the following factors:

Inflation: While showing signs of moderation, inflation remains above the RBI’s target of 4%. The RBI is likely to remain cautious until inflation reaches a more comfortable level.

Economic Growth: The Indian economy is showing strong growth momentum, supported by robust domestic demand. This positive outlook provides the RBI with some room to maintain a stable interest rate environment.

Global uncertainties: The global economic and geopolitical landscape remains uncertain. This cautionary factor likely influenced the RBI’s decision to maintain the status quo.

Here’s a breakdown of the potential impact of the December monetary policy:

Positive impacts:

Stable interest rates: This provides businesses and individuals with a predictable borrowing environment, which can encourage investment and drive economic activity.

Economic growth: The RBI’s focus on supporting growth is likely to contribute to a sustained economic expansion.

Financial stability: Stable interest rates help to maintain financial stability and prevent excessive risk-taking in the financial system.

Negative impacts:

Inflation: Persistently high inflation can erode purchasing power and discourage consumer spending. This could negatively impact economic growth.

Borrowing costs: Although rates remain stable, access to credit might become tighter due to the RBI’s focus on liquidity withdrawal.

Currency depreciation: The RBI’s cautious stance could lead to a weaker rupee, potentially impacting import costs and domestic inflation

For more details, you can watch the RBI Governor’s statement¹, read the full document of the monetary policy statement⁵.

Source:
(1) Reserve Bank of India – Monetary Policy. https://www.rbi.org.in/scripts/Annualpolicy.aspx.
(2) Reserve Bank of India – Press Releases. https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56502.
(3) RBI Monetary Policy Dec 2023 Live Streaming: Here’s How To Watch RBI Governor’s Statement. https://www.news18.com/business/rbi-monetary-policy-dec-2023-mpc-meeting-live-youtube-8694777.html.
(4) RBI’s monetary policy annoucement expected today. https://www.newsx.com/rbis-monetary-policy-annoucement-expected-today/.
(5) Ten key takeaways from RBI’s Monetary Policy statement. https://www.thehindu.com/business/ten-key-takeaways-from-rbis-monetary-policy-statement/article67617474.ece.
(6) Reserve Bank of India – Press Releases. https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=55177.