Participants from the RBI:

Shri Shaktikanta Das – Governor, Reserve Bank of India

Dr. Michael D. Patra – Deputy Governor, Reserve Bank of India
Shri M. Rajeshwar Rao – Deputy Governor, Reserve Bank of India
Shri T. Rabi Sankar – Deputy Governor, Reserve Bank of India
Shri Swaminathan J. – Deputy Governor, Reserve Bank of India
Dr. O. P. Mall – Executive Director, Reserve Bank of India
Dr. Rajiv Ranjan – Executive Director, Reserve Bank of India

Moderator:
Shri Yogesh Dayal – Chief General Manager, Reserve Bank of India

Yogesh Dayal:
Good afternoon everyone and welcome to the Post-Monetary Policy Press Conference of the Reserve
Bank of India. This is the last of this calendar year and I would like to welcome all media friends to this
Press Conference. Today, we have with us Honorable Governor Shri Shaktikanta Das, Deputy Governors
– Dr. M. D. Patra, Shri M. Rajeshwar Rao, Shri T. Rabi Sankar, and Shri J. Swaminathan. We also have
with us today, our Executive Directors Dr. O. P. Mall and Dr. Rajiv Ranjan. Sir, we will begin the press
conference with your opening remarks. So, may I request you to do the opening remarks.

Shaktikanta Das:
Good morning. Thank you all of you for being here and I think in future just Governor will be better than
Honorable Governor. I would like to make a few observations to capture the essence of today’s Monetary
Policy.

i. The years 2020 to 2023 will perhaps go down in history as a period of ‘Great Volatility’.
ii. India’s GDP growth remains resilient and robust as reflected in our projection of 7% growth in the current
year.
iii. On the inflation front, the summer of 2022 is behind us. We have made significant progress in bringing
down inflation. The steady decline in core inflation indicates that monetary policy is working.
iv. Moving forward, inflation management cannot be on auto-pilot. The future path is expected to be clouded
by uncertain food prices. CPI data for November is expected to be high.
v. The MPC will be highly alert to any signs of derailing of the ongoing disinflation process. Based on the
evolving situation, the MPC will take appropriate action to reach the 4% target.
vi. Liquidity will be actively managed consistent with Monetary Policy.
vii. The balance sheet of the financial sector remains robust. Sectoral and institution-specific signs of stress
are being proactively monitored and addressed. We do not wait for the house to catch fire and then act.
Prudence at all times is our guiding philosophy.
viii. The current account deficit (CAD) is expected to be modest and comfortably financed.
ix. Foreign exchange reserves at US$604 billion provide a strong buffer against global spillovers.
x. The stability of the Indian Rupee reflects the improving macroeconomic fundamentals of the Indian
economy and its resilience in the face of formidable global tsunamis.

I will stop here. Thank you.

Yogesh Dayal:
Thank you sir, for those opening remarks. Before we go ahead, may I request my media colleagues to
please wait for your turn to be called on and restrict yourself to one question each. If time permits, then
we will go for another question. Sir, I will begin by inviting Mr. M. Govardhan Rangan from the Economic
Times to ask his question.

Govardhan Rangan, The Economic Times:

Good afternoon, Governor. This time in terms of Monetary Policy, you have taken out all the surprises. It
is more than what the market asks for. You said regarding the financial stability that you would not wait for
the house to catch fire. Last time you saw some smoke in unsecured loans and doused it. So, which are
the areas where you see smoke now in the sense that you would not wait for the house to catch fire?
Thanks.

Shaktikanta Das:
As a part of our supervision and as a part of our very close and proactive monitoring of the financial
sector and individual financial institutions, our endeavour has always been to remain up to date. We have
deepened our supervisory methods. Our endeavour is also to try to use the smell test. I have talked about
it earlier. Whenever we smell any stress building up anywhere at the system level or an individual entity
level, we deal with it in the appropriate way.

Govardhan Rangan, The Economic Times:

You were warning about the unsecured loans for quite some time before you acted. Is there any segment
where you feel there is a warning necessary now?

Shaktikanta Das:
I cannot spell it out. As and when something like that becomes necessary, we will act. At this point of
time, as I have said in my statement today, the balance sheet of the Indian financial sector continues to
be robust and all the financial parameters of NBFCs and banks at the system level as well as at the
individual level, they also continue to be well above the minimum regulatory parameters, whether it is in
terms of capital adequacy or in terms of provisioning for bad loans or even on issues of, even on the
parameter of profitability.

Yogesh Dayal:
Thank you sir. I will move on to Ms. Latha Venkatesh from CNBC TV 18.

Latha Venkatesh, CNBC TV 18:

Thank you Yogesh, and thank you Governor for asking people to drop the word Honourable. I think that is
an extremely honourable statement to make. Thank you for that.

Sir, for the first time you have used the words, regulator should also be mindful of overtightening. Can we,
therefore, expect the interbank call rate to come towards the repo rate of 6.5? It has been at 6.75 for the
better part of a couple of months. On the issue of financial stability, you have just said that a connected
lending framework will be to strengthen the pricing and management of credit by banks. Does this mean
that there will be a little more tightening? Will that be the net result of that framework? When you
announced the unsecured loans, was there a worry that bank loans were going to the stock market?
There was a report from Ashish Gupta that derivatives are now 400 times. Is there any fear that this
money is going there?

Shaktikanta Das:
Whatever was in our mind, we have spelt out. These are precautionary measures which we have taken.
Our effort is always to act proactively before the bubble bursts. We act before stress builds up. Our
endeavour has always been to act proactively and I have stated very clearly that these are pre-emptive
measures which we have said. With regard to the connected lending, I would request DG Rajeshwar Rao
to please answer that question. And with regard to the overtightening, we always take a balanced call. I
would request DG Michael Patra to reply to that. I will supplement thereafter if need be. So, first, DG
Rajeshwar Rao and then DG Michael Patra.

M. Rajeshwar Rao:
Thank you Governor. There is a bit of a misunderstanding between connected lending and
interconnectedness. When we talk about connected lending, it is essentially lending to persons who have
the position to control or influence the decision of a lender. So, it is in that context, a guideline on
connected lending is being conceived of. Right now, the regulations vary between the regulated entities
that have scattered provisions. In order to bring about uniformity in the process of these regulations, we
are coming up with some draft guidelines, which will help to clarify the position and have uniformity in the
regulatory approach to connected lending amongst all regulated entities.

Michael D. Patra:
If you notice in the first few days of December, the call rate has already started gravitating towards the
repo rate. In fact, on the 4th and 5th of December, it was 6.45% sub-repo, and you will see that this is
coincidental with Government spending. Government balances have been coming down and the previous
tightness was also associated with a build-up of balances. On the overtightening, I will let the author
speak on this

Shaktikanta Das:
We have always tried to take a balanced call, and this is not the first time that we have said so. What is
our Monetary Policy as prescribed in the law? The primary target is price control in terms of maintaining
4% inflation which I have emphasised very clearly in my statement. I mentioned it again here in my
opening remarks. The law also requires that we have to keep in mind the objective of growth.

Last year in May, we spelt out that when we shifted our focus and prioritised inflation over growth, that
same approach continues. There is no change in that stance. It is to place things in a particular
perspective. I have tried to explain the overall approach that central banks adopt and in particular, the
approach that the Reserve Bank has been approaching. Our decisions, as I have said, are dependent on
two major parameters. That is inflation and growth. Inflation is our top priority now. We still have a
distance to cover to reach 4% inflation.

The use of the risk of overtightening should be read along with the previous sentence where I have said
that a few months of good data should not push us into some kind of complacency and the fact that
inflation has come within the target range also should not lead to any kind of complacency. So, a mention
of the word ‘overtightening’ should not be read as a change in our approach. It would be wrong to assume
that any kind of loosening et cetera is around the corner. That is not on the table at the moment. Let me
be very clear. It is not at all on the table. Look at the inflation numbers; look at the inflation trajectory. So,
we still have a distance to cover.

Latha Venkatesh, CNBC TV:

Was the stock market exuberance one reason? Do you feel the bank money is going there?

Shaktikanta Das:
That is a very hypothetical question. There have been anecdotal write-ups, but we are mindful of all
possible risks building up. For stock markets, there is a stock market regulator, SEBI. The SEBI monitors
what is happening in the stock markets, and if there is something happening, which is of concern to the
SEBI or comes to the notice of SEBI, I am sure they will bring it to our notice.

Yogesh Dayal:
Thank you sir. I will move on to Mr. Ankur Mishra from ET Now to ask his question.

Ankur Mishra, ET Now:

Thank you Yogesh sir. I want to draw your attention to the announcement which was made in the last
policy. You had warned about an unsecured loans portfolio and later on, there was an announcement
from the Reserve Bank of India. I want to understand that a few of the players have said that they are
going slow on small ticket-size loans. Did you see some problems there particularly? And another thing,
NBFCs have also claimed to have reached out to you regarding the problem which will arise after the
circular which you have issued. Is there some rethinking? Have you had some discussion?

Shaktikanta Das:
I would request DG Swaminathan to reply to that.
Swaminathan J.:
As it was mentioned while making that announcement itself, it was a pre-emptive measure to bring certain
prudence and to bring an end to any sort of exuberance that may be exhibited by certain lenders. The
effort was made over the previous 3-4 months by way of sensitising the players to put adequate internal
control measures to ensure that the risk build-up is avoided. As the market was not responding enough to
that, there was a necessity, as we had mentioned earlier, to watch the data and on the basis of the data,
we have taken certain measures to strengthen the prudential measures that the regulated entities have to
put in place.

It is too early to see or pass a conclusion as to what sort of effect it is taking. But at least from our
interactions with the market participants, the financial system as well as some of the articles are alluding
to the fact that there are risk management practices are getting better, underwriting is getting better, and
any business model that is likely to throw up an enhanced risk is curtailed. That is our intention. It is not to
curtail the growth and we have taken care to exclude growth drivers, the segments like home loans or
vehicle loans or to the small borrowers or to SHG, those segments have been kept outside of this
purview. So, we would expect the lenders to conduct themselves and draw their business models in a
manner in which an avoidable risk buildup is mitigated.

Ankur Mishra, ET Now:

After your assessment, is there also consideration as I mentioned about NBFCs that you are having some
kind of discussion about problems which you have faced?

Swaminathan J.:
Essentially, these measures were intended to address the interconnectedness that was building up within
the financial system and also to curtail it because as we had highlighted, it was growing at about 24%,
25% on a YoY basis as compared to the rest of the system that was growing at about 12% to 14%. So,
that particular segment of bank lending to NBFC had to be calibrated and we have tried doing it through
the risk weight. Also, the NBFC's growth in certain segments was an outlier, so for that particular
segment, we have to add risk weight. So, it is a kind of prudential measure at this point. It is not to deny
liquidity. It is not to ration the lending. It is only that, we would like the lenders to have adequate risk
weights put in place and limits to be set in place for prudential monitoring. That's all.

Yogesh Dayal:
Thank you sir. I will move on to this side. Today, one TV channel has been launched, NDTV Profit. I will
request Vishwanath Nair to ask his question from there.

Vishwanath Nair, NDTV Profit:

Whether these five policies of no action and maintaining this withdrawal of accommodation stance
inadvertently communicate a neutral stance on rates to the market by any chance because you are not
neutral yet, but five policies of no action could indicate that?

Shaktikanta Das:
I do not know on what basis you are reaching that conclusion. We do not communicate anything
inadvertently. Let me make it very clear. All our communication is carefully prepared. We are aware that
in the markets and the media, you analyse each and every corner of the statement, the comma, full stop,
everything. So, we are very careful in our communication. There is no inadvertence in any of our
communications. If somebody is assuming that it is a signal to move towards a neutral stance, it would be
incorrect. It will not be correct at all. You look at the inflation trajectory. We are still away from 4% target
and we have said that the Monetary Policy continues to remain actively disinflationary. So, it would be a
mistake to read that we are giving any kind of signal that we are moving towards neutral. That would be a
wrong interpretation.

Yogesh Dayal:
Thank you sir. I will invite Mr. Manojit Saha from Business Standard to ask his question.
Manojit Saha, Business Standard:
Good afternoon, sir. Is RBI comfortable with the EMIR-complied MoU with ESMA? Does that address the
concern of inspection audit and possible penalty? Is RBI comfortable with that? And also, one
clarification. You did not mention the word OMO this time. The sword had been hanging over the last two
months. So, can we assume that it is off the table now because liquidity has been tightened?

Shaktikanta Das:
I will take the OMO question and with regard to the ESMA part, I will pass it on to DG Rabi Sankar. We
have not said that it is off the table. We have announced that in the last meeting. We have very clearly
mentioned in the statement that due to certain factors which are not in our control, like the demand for
currency during the festival season, the build-up of cash balances in the Government, which, of course,
have now started coming down as Government spending has picked up, and based on market movement
like market interventions, which have an impact on liquidity. I have said in the statement that the need to
deploy this instrument has not arisen. It is not off the table. That instrument remains very much on the
table. That is always in Arjuna's quiver. It will be used if and when required depending on the evolving
liquidity conditions. I would request DG Rabi Sankar to take the other part of the question.

T. Rabi Sankar:
These MoUs or agreements with respect to market infrastructure agencies like CCIL should be
underpinned by the word that is used in their regulations - cooperation. They should be cooperative
documents. We believe that they should follow the principle of mutual respect and the principle of mutual
trust. They should also be characterised by the principle of deference to local regulations. In other words,
we are not comfortable with the regulations anywhere which are characterised by extraterritorial
jurisdiction. The one we signed with the Bank of England is there on the website. You would have gone
through it. You would have noticed that the emphasis is on deference and cooperation.

Yogesh Dayal:
Thank you sirs. I will move on to Mr. Shayan Ghosh from Mint.

Shayan Ghosh, Mint:

Following your guidelines on risk weights, a lot of lenders have decided to curtail smaller loans. But do
you think that the sudden closure of the tap would affect that section of borrowers who were so far
dependent on that? There have been a lot of instances of cooperative bank board changes recently, then
ED raids and all that. As a regulator, how do you tackle the cases of corporate governance issues, and
governance issues at the cooperative bank level?

Shaktikanta Das:
With regard to ED raids, etc., I cannot make any comments. That is an independent autonomous body.
The other two components of your question, I would request DG Rajeshwar Rao and Swaminathan, you
can take those questions.

M. Rajeshwar Rao:
Risk weights, as already mentioned, is essentially a prudential measure to curb growth or moderate the
credit growth in certain specific sectors. It is not tantamount to turning off the tap. The tap is open but the
only thing may be the pressure has then reduced a bit. So, I do not think that is the intention and is
unlikely to be the outcome of the measure which we have announced.

Coming to the governance issues, through the supervisory process, we have a close monitoring of the
various parameters of the functioning of the regulated entities which includes governance, business
model, risk management, compliance, etc. It is a package which monitors the entire functioning of these
regulated entities. If there are certain concerns about the regulated entity insofar as governance is
concerned there would be an engagement with the concerned entity to take appropriate action as may be
necessary.
Swaminathan J.:
Thank you. Just to supplement that, up to Rs.50,000-category to put a context to it the composition of that
particular segment is less than half a per cent of the total outstanding. While of course, it may be dealing
with a lot of number of people, it is a segment that cannot pose a great risk on its own because the total
quantum itself is less than 0.5%. That is in terms of the context part.

The second is that, as I mentioned, we have what we would like to curtail and expect the lending
institutions to provide for more by way of additional risk weight is some of those consumption-led
segments or unsecured credit which do not have a defined end-use. We have taken care to support
whatever growth drivers are already there. So, whatever lending was taking place for which a clear end-
use was not visible or completely unsecured without a clear purpose is what will get curtailed. Based on
this there will be some recalibration of business models, also recalibration of the growth number that is
what is the intended effect of the regulation. If it is playing out, that is only giving the intended results and
as DG(MRR) clarified it is not our intention to deny or ration credit. There is enough headroom available.
The exposure framework permits adequate lending to be provided to support growth.

The second part, again to supplement that, the governance and effectiveness assurance function has
been at the top of our priorities. From a qualitative perspective, while of course quantitative parameters,
the entire financial system looks very good at this point, what we would like to focus on is the qualitative
parameters. It has always been a focus area, but you might hear us more on governance and the
effectiveness of assurance functions because strengthening these two is what will ensure the continued
stability of the financial system. So, that is why the emphasis is on.

Yogesh Dayal:
Thank you sirs. I will request Shyama Mishra from Doordarshan to ask her question.

Shyama Mishra, Doordarshan:

Good afternoon Governor. Are there any external factors that are looking promising for the Indian
economy?

Shaktikanta Das:
The major factor is that there is growing international confidence in the Indian economy. My interactions
with Governors of other countries, with various other regulators and stakeholders and other investors, in
particular from other countries, major investors who visit India and some of them do come to the RBI and
meet us. There is growing confidence in the potential of the Indian economy and India's capacity to grow
that is probably something, which is noteworthy, and that also translates into another area namely
confidence from the point of view of making investment, there is a kind of confidence in the quality of
Indian products and more particularly the quality of India's services exports. There is a greater confidence
in the quality of our merchandise exports and in the quality of our services exports which is the inherent
quality and the strength of all that we are doing.

Yogesh Dayal:
Thank you sir. I will now request Mr. Anoop Roy from Bloomberg to ask his question.

Anoop Roy, Bloomberg:

Thank you sir. You are sounding very cautious about inflation and previously you have said that we will
not consider easing or think of easing before it settles around 4% on a sustainable basis, but going by the
analysts, it is not going to happen before 2025. So, are you going to keep rates elevated for this whole
year, next year or something else that will prompt you to cut probably the U.S. Fed rate or something?

Shaktikanta Das:
Specifically on the rates and the cut, etc., I have stated, and DG Michael Patra has also stated that we
refrain from giving any forward guidance considering that with the kind of uncertainty that lies ahead of us.
In the concluding paragraph of my statement, I have said that the future looks very fickle, and I have also
said that new shocks can hit any economy. It can come from anywhere and hit any economy anytime. So,
if that is the level of uncertainty and if our inflation is still quite away from 4%, we just cannot give any
forward guidance about whether we will tighten further or we will loosen or what we will do? Everything
depends on the evolving situation. It is not possible in the current situation for any central bank to give
forward guidance. You would have seen that the level of forward guidance also given by many central
banks internationally has now sort of come down.

Yogesh Dayal:
Thank you sir. I will now invite Mr. Ryosuke Hanada from Nikkei Asia to ask his question.

Ryosuke Hanada, Nikkei Asia:

I want to ask about the detailed assessment of the Indian economy as everyone's aware that the latest
GDP statistics show robust growth. However, at the same time, some private institutes reported that the
jobless rate temporarily recorded over 10% in October. I understand it is not the Government's official
statistics, but what do you think about the future expectations regarding the employment environment in
India?

Shaktikanta Das:
We have analysed all these aspects in great detail internally. I would request DG Michael Patra to please
take that question.

Michael D. Patra:
They are now very credible official statistics on employment. So, I will refer you to the periodic Labor
Force Survey, which is put out by the Government of India and has been conducted since April 2017. So,
you have a consistent series right from July 2017. If you look at those data which are available right up to
September 2023, you get the labour participation rate, the worker-to-population ratio that is the number of
employed people in the population and also the unemployment rates, not only for the country as a whole
but also for women and men and for urban and rural areas. So, if you see the labour participation rate, it
is at its highest level ever. People want to or are seeking work and as regards the unemployment rate, it
has fallen to 6.6%, not 10%, and that is probably the lowest in the series right now.

Yogesh Dayal:
Thank you sir. I will invite Mr. Piyush Shukla from the Financial Express to ask his question.

Piyush Shukla, The Financial Express:

Sir, the transmission of your rate hikes done through the last year and this year is not reflected in large
banks' savings account deposits so what are we doing about that? A lot of people are parking money in
mutual funds as well. So, small banks are not able to register any growth in their CASA. It is a minuscule
single digit. What is happening there? Secondly, regarding the willful defaulter circular which you have
asked banks to apply for within 6 months, there is a representation made by IBA to extend the timeline to
one year, so any update on that?

Shaktikanta Das:
The information regarding the transmission of rates, I have provided in a footnote to the statement. You
might have already noticed it. You were talking about the savings and the savings bank interest rates.
You also referred to more and more money going into mutual funds. Now that is the function of the
economy, which is the function of the market and that is a decision which each individual has to take
where he wants to put his money. How much money he wants to keep in banks, how much money he
wants to put in mutual funds, and where he is going to deploy his money or his savings. So, I would not
like to say anything about that.

With regard to Small Savings Bank interest rates, you are right they have not seen much increase, but as
you would appreciate the interest rates are deregulated and any sort of introduction of any kind of
administered rate for any component of bank deposits would be a very retrograde step. So, we have no
such ideas. It is a commercial decision that the banks have to make. At times you would have noticed
several banks also increase their savings account interest rates because they depend on their liquidity
assessment. So, it is a decision which is left to the banks to take. So far as the RBI is concerned, the
interest rates, as you are aware, are deregulated.

M. Rajeshwar Rao:
On the willful defaulter case representation, the entire draft circular has been put in the public domain for
comments. We have received feedback on the circular and we are in the process of analysing them
before we refine and finalise the circular. So, this feedback also will be factored in while making a final
decision on the circular.

Piyush Shukla, The Financial Express:

When will the final circular come sir?

M. Rajeshwar Rao:
No, we are just in the process of analysing shortly.

Yogesh Dayal:
Thank you sir. I will move on to Mayur Shetty from The Times of India.

Mayur Shetty, The Times of India:

Governor, I wanted to know the thinking behind the announcement on the RBI providing cloud services. Is
this an extension of the principle of data sovereignty and asking payment companies to have on-soil
storage of data? I had another question on growth. What makes you so confident of growth given all the
commentary that we are hearing on sluggish private investments, uncertain rural demand and slowing
import demand?

Shaktikanta Das:
I was anticipating this question, but I was wondering why it has not been asked. On the cloud part, I would
request DG Rabi Sankar to reply and explain why we are setting it up. We have already explained but DG
Rabi Sankar takes that part of the question and about our confidence with regard to growth, let DG
Michael Patra reply, I will supplement, if required.

T. Rabi Sankar:
Increasing data, data storage, data processing, and their efficiency are major issues and currently data is
sometimes kept in-house on-premises, and sometimes in other clouds. We thought that the basic driver
behind this is to provide a structured, scalable data storage and data processing facility, which is why the
cloud has been talked about.

The idea is to ensure the security, integrity and safety of data. It has nothing to do with the data
sovereignty that you have referred to here. What services will be provided and all will be determined in
the course of time. Whether it will be infrastructure as a service, which is a storage or whether it will be
platforms that will be provided, whether it will be software that will be provided especially for smaller
entities like cooperative banks. This provides a lot of efficiency in terms of scale because for each one to
maintain their database involves a large amount of investments, skill and all that this cloud is expected to
provide.

This cloud will be owned by financial sector entities as we have clarified going forward. At this point in
time, our idea is to just give it a push, let it start off and then let the system manage. It is like a digital
public infrastructure. At this point in time, IFTAS will create it and run it. Going forward, it will shift.

Shaktikanta Das:
On the growth part, you can take.
Michael D. Patra:
As you know the first half estimates have beaten all estimates, including ours and if you just sort of put
that actual number and the projections we made in the last policy together you will come up with a
number close to 7% or at 6.9%, but if you look at October, November high-frequency data which we use
for our nowcast, they are all very robust right now. So, if you just take October-November data, you will
exceed 7%. So, at the current time, 7% is a conservative estimate.

Shaktikanta Das:
Let me touch upon what you referred to as rural demand and CAPEX. The rural demand; despite the late
Kharif harvest in certain parts of the country, two-thirds of Rabi sowing is already complete. Secondly, we
have also seen that two-wheeler sales have posted a significant turnaround and in fact according to the
data provided by the Federation of Automobile Dealers Association FADA, for the 42 days festival period
during October and November, the retail sales of two-wheelers recorded a growth of 20.7%. FMCG
volumes in the rural segment have also shown improvement and they are growing at about 6.4%. Right
from the beginning of this financial year, the rural demand for FMCG is steadily picking up and as per the
latest data, they have grown by about 6.4% in the whole of the second quarter. The demand for Mahatma
Gandhi NREGA interestingly also has declined for the first time in this financial year during November by
about 4.6%. So, that is why we are saying that there are signs that rural demand is also turning around.

With regard to investment pickup, the Government capital expenditure continues to be very strong. The
General Government capital expenditure undertaken by both the Central Government as well as the State
Governments recorded a growth of 36.7% during April-October 2023. Private capital expenditure is also
showing signs of revival, particularly in sectors like petroleum, steel, cement and chemicals. Capacity
utilisation has now reached a kind of threshold. It is higher than the long-period average at 74%. It has
reached a point where we can expect private investment to start picking up. Quite a bit of investment is
already taking place in private-sector manufacturing companies. For example, the investment in fixed
assets by listed private manufacturing companies has registered a growth of 10.5% in the first half of the
current financial year and a number of companies, according to our survey and the inputs, in the
manufacturing sector are using their internal reserves and surpluses to invest. They are not approaching
the bank or they are not resorting to any other kind of borrowing or raising funds. The high-frequency
indicators of investment, such as steel consumption and cement production and very importantly import of
capital goods are also showing good growth. All these indicate that the investment cycle should continue.

Yogesh Dayal:
Thank you sirs. I will move on to Ms. Swati Bhat Shetye from Thomson Reuters.

Swati Bhat Shetye, Thomson Reuters:

You mentioned in your statement today that FPI flows have started to pick up. They have also picked up
on the debt side. With India's inclusion in the Global Bond Index next year, we could expect further flows.
So, even if the overall flows into India are comfortable, would you require any kind of macroprudential
norms; if there is heavy investment in, say, the benchmark paper or any individual paper? Are you
considering any of those factors and how would the RBI respond to those?

Shaktikanta Das:
I have mentioned at some other events the impact of the bond inclusion of India in the bond Index. There
are various assessments available, various analysts are making various assessments as to how many
billions of dollars will flow in we have to see. It will start probably, as per reports, from June onwards on a
sort of monthly basis. It is not as if suddenly in June there will be a huge flow. It will happen every month
and we have the capacity to deal with that kind of inflow and that's it.

If you look at our past track record, we have been managing these flows in both directions when there are
outflows or there are inflows and we are quite confident of dealing with it and it will be a kind of a steady
inflow. If materialises from June onwards, we should be able to deal with it.
Swati Bhat Shetye, Thomson Reuters:
Sir, I was talking about whether there is heavy investment in one particular bond, would that be a matter
of concern? Overall flows may be comfortable, you have been managing those, but say the benchmark
bond if a percentage of ownership in one bond becomes very heavily foreign-owned, is that going to be a
cause of concern?

Shaktikanta Das:
DG Rabi Sankar can take that question.

T. Rabi Sankar:
We should cross the bridge when we come to it saying what will happen if there is a lot of investment. We
have not had that issue before, but most central banks globally monitor the total holding in any particular
security by any individual investor. That is something we also wanted, but as I said that is not something
that we have had if it comes. We will deal with it at that point in time. Just to say one other point, if you
look at our history the total amount that people say will come in through the bond Index inclusion is
between US$20 to US$25 billion. In 2013, we lost close to US$20 billion in a very short period of time,
without having too much of a problem we managed that. The concern is that this could cause volatility
and all that is a bit overblown. Apart from that, we have all the instruments necessary. The reserve levels
are much higher, the parameters for our exposure or vulnerability are much better and so on.

Yogesh Dayal:
Thank you sirs. I will move on to Ms. Swati Khandelwal from Zee Business to ask her questions.

Swati Khandelwal, Zee Business:

Can you please elaborate on how the new regulatory framework of connected lending can help existing
customers, which is going to bring in more improved access to smaller exposures? Can you please
quantify smaller exposure? In the regulatory framework which you are strengthening, the exposures
which are small exposure for that access should be better for the regulator, if we can quantify small.

Shaktikanta Das:
Deputy Governor Rajeshwar Rao has already clarified the connected lending. Connected lending has
nothing to do with the interconnected issue. There are already guidelines on connected lending. Basically,
the meaning of connected lending is that if a person is in a position where he can influence the bank's
decision for them, we broadly call it connected lending or there are two parties which are interrelated. A
bank is lending to a party and there is already an interrelationship between the bank and that party; that is
called connected lending. We already have a guideline for connected lending, for example, directors of
banks, if they are particularly borrowing from this monetary level it has to be taken to the board, etc.
There is no connection with the interconnectedness.

Swati Khandelwal, Zee Business:

For web aggregators, you have talked about the focus on digital lending, so whether it is going to restrain,
or it will tighten smaller ticket loans?

Shaktikanta Das:
DG Rajeshwar Rao can respond to that question.

M. Rajeshwar Rao:
This is actually a follow-up on the recommendations of the working group on digital lending, which was
accepted by the Reserve Bank last year and we have come out with guidelines. We said we would also
look at regulating the web server, what you call lending through web platforms. The basic idea is the
lending service platform. They may collect information from various sources and give the details to the
customer, but there could be a preference for certain things and certain other things may not be covered.
So, we will give them some guidance on what should they do so that the borrower has full transparency
on what are the rates available to him.
Shaktikanta Das:
Web aggregators, who are going to function, should be a neutral platform on each. It should not be like
they push sell that particular loan product through some other method. Some instances have come to our
notice and we are trying to make it transparent, and neutral, ensuring no miss-sell and at the same time
borrower decision influence should not be any scope.

Yogesh Dayal:
Sir, we will take the last three questions. There have been some people who have been waiting very
patiently. So, I will start with Hamsini Karthik from The Hindu Business Line followed by Hitesh Vyas from
the Indian Express and with Mr. Pankaj Aher from the Informist.

Hamsini Karthik, The Hindu Business Line:

There seems to be a sort of growing reliance by most of the lenders, banks and NBFCs put together on
risk-based pricing. This is both on the secured as well as the unsecured side. You have attacked the
unsecured side through the RWA, but there is a sense that we can price the risk very well. At a regulatory
level, is there something that you all are very comfortable with? There is another layer to it on the secured
loans where we are seeing that the terminal value of assets is reducing in terms of their market value
when they are put out vis-a-vis new property. This is evident with cars, this is evident with home loans,
etc., as well, but the pricing between the two is shrinking. Whether we take mortgages versus LAP or
second-hand cars versus new cars, it is shrinking. Is that a cause of concern for you?

Shaktikanta Das:
I would request DG Swaminathan to take that question.

Swaminathan J.:
Essentially risk weights have to be aligned with the type of the product and the segment to which it caters.
So, at the macroprudential level, the regulations try to segregate them on that principle and then
accordingly we ensure that the risk weights are assigned. The lenders will accordingly calibrate their
business models. Wherever we see a possible risk build-up, we have taken certain measures as a pre-
emptive action and to remind you that these additional risk weights on some of the items are only bringing
back what was prevalent during pre-COVID. These segments were sort of a bit of relaxation brought in to
facilitate a very unusual situation. So, they are now back to normal numbers. Apart from NBFC, which
was a recent phenomenon which we had to act upon. It is towards that effect that wherever there is an
additional risk builder that has got to be addressed. The second part of your question, I am sorry I did not
get it. What was the second question you asked?

Hamsini Karthik, The Hindu Business Line:

Earlier we used to have at least a 200 to 300 bps gap between a LAP and mortgages that are shrinking. It
is now around 70 bps.

Swaminathan J.:
We have guidelines which are clear in terms of how pricing will have to be done, whether it is an MCLR-
based lending or an external benchmark linked rates, and how the risk premium and the operating cost
can be calculated and arrived at. This is what we can provide in terms of guidance. Beyond which what
exactly should be the applicable or effective pricing for a particular product, or a segment of customers is
purely driven by the policies approved by the boards of the respective lending institution and their
business model focus areas and their risk appetite.

So, it is not to be construed that the regulation will look at the differential pricing between various
products, and how secured or unsecured it is. We look at the risk build-up and try addressing it. Pricing is
part of the commercial decision and how exactly to build risk premiums over different products is
something which the banks themselves build basis their risk appetite framework and business priorities.
Hamsini Karthik, The Hindu Business Line:
Do you believe it is in a comfortable position today?

Swaminathan J.:
Absolutely. This is something which is left to the commercial judgment and wisdom of the lending
institutions and if you see any unusual outlier behaviour, that will be curtailed through the supervisory
process, we may not require regulations to control that.

Yogesh Dayal:
Sir, Mr. Vyas from The Indian Express.

Hitesh Vyas, The Indian Express:

Sir, I just want to understand the policy stance you have explained in the past, but I just want to
understand once again when you say withdrawal of accommodation, what exactly does it mean?

Shaktikanta Das:
I would request DG Dr. Patra to take that question.

Michael D. Patra:
Actually, the Governor has explained this several times, but let me take the last attempt. So, in modern
times, Monetary Policy is chiefly operated through the interest rate and Monetary Policy is a tool of
stabilisation. By stabilisation, I mean that when GDP goes way above its trend the task of Monetary Policy
is to bring it down to its trend, and when inflation goes above its target, Monetary Policy tries to bring
down inflation to the target. Obviously, when this kind of thing happens, GDP goes above target or
inflation goes above target, Monetary Policy raises the interest rate and conversely, when it is below, it
reduces the rate. So, increasing and reducing rates is probably with some kind of benchmark. So, there is
a certain benchmark where if inflation is at target and GDP is at trend; Monetary Policy has to neither
restrict nor accommodate.

At the current time, GDP is at potential, i.e., at trend with the new number, but inflation is way above
target. If you take the average for the year, it is 5.4% and the target is 4%. So, we have to withdraw
accommodation further to bring back inflation from 5.5% to 4%. That is the withdrawal of accommodation.

Yogesh Dayal:
So, on this side, we have missed out Mr. Pankaj Aher from Informist.

Pankaj Aher, Informist:

Sir, before I ask a question, I wanted to actually compliment you for the candour with which you have
answered at least a couple of questions today.

Shaktikanta Das:
Why do you say unusual that we reply with candour? We have tried to be as transparent as possible.

Pankaj Aher, Informist:

On the question of stance, you clearly said that there is no inadvertent communication from the RBI. We
also appreciate that. The market will be very happy to hear those things. My actual question is, given this
backdrop, given the monetary policy committee’s target of inflation control, given the RBI's projections for
inflation, would it be fair to expect that unless there is an external shock or unforeseen shock Monetary
Policy will continue to remain actively disinflationary till inflation reaches 4%?

Shaktikanta Das:
Same kind of question came earlier also and I have replied. We are not giving any forward guidance
about our specific actions with regard to stance or with regard to the rates. With regard to stance, the
deputy governor has explained what is meant by withdrawal of accommodation.

So, you can interpret from that when the RBI will probably if that situation materialises, that can be a
situation where the RBI can think of changing the stance, but at the same time reaching 4% should not
just be a one-off event, it has to be durably 4% and as the monetary the MPC should have confidence
that yes, 4% has now become durable.

You can also interpret from that when the stance will change and with regard to the rates, I will not be
able to give any forward guidance that will depend on the evolving situation since this is the last question,
I guess I just wanted to say it just for clarification because media has its own way of interpreting
statements and I don't want to be inadvertent in any manner.

I referred to Arjuna’s quiver. Let me say very emphatically that we have no exalted notion of ourselves as
an institution. It was just a kind of analogy or a metaphor I used to explain to just say that particular
instrument is available with the Reserve Bank. There is absolutely no intention to have an exalted opinion
of ourselves or to assume that we have become equal to a great warrior. We draw lessons from the
principles that the character Arjuna and Mahabharata has demonstrated from time to time. Thank you.

I used the word character of Mahabharat Arjuna. It is not the character it is a great warrior of
Mahabharata.

Yogesh Dayal:
Thank you sir. With this, we come to the formal close of the press conference. I would like to thank all the
media friends for patiently participating in the press conference and also thank the top management led
by Governor Shri Shaktikanta Das for making it very interesting. Thank you very much and wish you a
Happy New Year in advance. Thank you.

Shaktikanta Das:
Wish you all a very Happy New Year and once again your reference to inadvertent made me to again
clarify these two things. Thank you.

Minutes of the Monetary Policy Committee Meeting, December 6 to 8, 2023

[Under Section 45ZL of the Reserve Bank of India Act, 1934]

The forty sixth meeting of the Monetary Policy Committee (MPC), constituted under Section
45ZB of the Reserve Bank of India Act, 1934, was held during December 6 to 8, 2023.

2. The meeting was attended by all the members – Dr. Shashanka Bhide, Honorary Senior
Advisor, National Council of Applied Economic Research, Delhi; Dr. Ashima Goyal, Emeritus
Professor, Indira Gandhi Institute of Development Research, Mumbai; Prof. Jayanth R. Varma,
Professor, Indian Institute of Management, Ahmedabad; Dr. Rajiv Ranjan, Executive Director
(the officer of the Reserve Bank nominated by the Central Board under Section 45ZB(2)(c) of
the Reserve Bank of India Act, 1934); Dr. Michael Debabrata Patra, Deputy Governor in
charge of monetary policy – and was chaired by Shri Shaktikanta Das, Governor.

3. According to Section 45ZL of the Reserve Bank of India Act, 1934, the Reserve Bank shall
publish, on the fourteenth day after every meeting of the Monetary Policy Committee, the
minutes of the proceedings of the meeting which shall include the following, namely:
 the resolution adopted at the meeting of the Monetary Policy Committee;
b. the vote of each member of the Monetary Policy Committee, ascribed to such member, on the
resolution adopted in the said meeting; and
the statement of each member of the Monetary Policy Committee under sub-section (11) of
section 45ZI on the resolution adopted in the said meeting.

4. The MPC reviewed the surveys conducted by the Reserve Bank to gauge consumer
confidence, households’ inflation expectations, corporate sector performance, credit
conditions, the outlook for the industrial, services and infrastructure sectors, and the
projections of professional forecasters. The MPC also reviewed in detail the staff’s
macroeconomic projections, and alternative scenarios around various risks to the outlook.
Drawing on the above and after extensive discussions on the stance of monetary policy, the
MPC adopted the resolution that is set out below.

Resolution

5. On the basis of an assessment of the current and evolving macroeconomic situation, the
Monetary Policy Committee (MPC) at its meeting today (December 8, 2023) decided to:

Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per
cent.

The standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal
standing facility (MSF) rate and the Bank Rate at 6.75 per cent.

The MPC also decided to remain focused on withdrawal of accommodation to ensure that
inflation progressively aligns to the target, while supporting growth.

These decisions are 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.

Assessment and Outlook

6. Global growth is slowing at a divergent pace across economies. Inflation continues to ebb
though it remains above target with underlying inflationary pressures staying relatively
stubborn. Market sentiments have improved since the last MPC meeting – sovereign bond
yields have declined, the US dollar has depreciated, and global equity markets have
strengthened. Emerging market economies (EMEs) continue to face volatile capital flows.

7. Domestic economic activity is exhibiting resilience. Real gross domestic product (GDP)
grew year-on-year (y-o-y) by 7.6 per cent in Q2:2023-24, underpinned by robust investment
and government consumption, which cushioned the drag from net external demand. On the
supply side, gross value added (GVA) rose by 7.4 per cent in Q2, driven by buoyant
manufacturing and construction activities.

8. Continued strengthening of manufacturing activity, buoyancy in construction, and gradual

recovery in the rural sector are expected to brighten the prospects of household consumption.
Healthy balance sheets of banks and corporates, supply chain normalisation, improving
business optimism, and rise in public and private capex should bolster investment going
forward. With improvement in exports, the drag from external demand is expected to
moderate. Headwinds from the geopolitical turmoil, volatility in international financial markets
and geoeconomic fragmentation pose risks to the outlook. Taking all these factors into
consideration, real GDP growth for 2023-24 is projected at 7.0 per cent with Q3 at 6.5 per cent;
and Q4 at 6.0 per cent. Real GDP growth for Q1:2024-25 is projected at 6.7 per cent; Q2 at 6.5
per cent; and Q3 at 6.4 per cent (Chart 1). The risks are evenly balanced.

9. CPI headline inflation fell by about 2 percentage points since the last meeting of the MPC to
4.9 per cent in October 2023 on sharp correction in prices of certain vegetables, deflation in
fuel and a broad-based moderation in core inflation (CPI inflation excluding food and fuel).

10. Uncertainties in food prices along with unfavourable base effects are likely to lead to a
pick-up in headline inflation in November-December. Kharif harvest arrivals and progress
in rabi sowing together with El Niño weather conditions need to be monitored. Adequate
buffer stocks for cereals and a sharp moderation in international food prices, along with pro-
active supply side interventions by the Government may keep these food price pressures under
check. Crude oil prices may remain volatile. Early results from the firms polled in the Reserve
Bank’s enterprise surveys indicate softer growth in input costs and selling prices for the
manufacturing firms in Q4 relative to the previous quarter, while price pressures persist for
services and infrastructure firms. Taking into account these factors, 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. Assuming a normal
monsoon next year, 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 (Chart 2). The risks are evenly balanced.
11. The MPC observed that recurring food price shocks are impeding the ongoing disinflation
process. Core disinflation has been steady, indicative of the impact of past monetary policy
actions. Headline inflation, however, remains volatile, with possible implications for the
anchoring of expectations. Domestic food inflation unpredictability, and volatility in crude oil
prices and financial markets in an uncertain international environment pose risks to the
inflation outlook. The path of disinflation needs to be sustained. The MPC will carefully
monitor any signs of generalisation of food price pressures which can fritter away the gains in
easing of core inflation. On the growth front, improved momentum in investment demand
along with business and consumer optimism, would support domestic economic activity and
ease supply constraints. As the cumulative policy repo rate hike is still working its way through
the economy, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this
meeting, but with preparedness to undertake appropriate and timely policy actions, should the
situation so warrant. Monetary policy must continue to be actively disinflationary to ensure
anchoring of inflation expectations and fuller transmission. The MPC will remain resolute in
its commitment to aligning inflation to the target. The MPC also decided to remain focused on
withdrawal of accommodation to ensure that inflation progressively aligns to the target, while
supporting growth.

12. All members of the MPC – Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth R.
Varma, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das –
unanimously voted to keep the policy repo rate unchanged at 6.50 per cent.

13. Dr. Shashanka Bhide, Dr. Ashima Goyal, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra
and Shri Shaktikanta Das voted to remain focused on withdrawal of accommodation to ensure
that inflation progressively aligns to the target, while supporting growth. Prof. Jayanth R.
Varma expressed reservations on this part of the resolution.
14. The minutes of the MPC’s meeting will be published on December 22, 2023.

15. The next meeting of the MPC is scheduled during February 6-8, 2024.

Voting on the Resolution to keep the policy repo rate unchanged at 6.50 per
cent

Member Vote
Dr. Shashanka Bhide Yes
Dr. Ashima Goyal Yes
Prof. Jayanth R. Varma Yes
Dr. Rajiv Ranjan Yes
Dr. Michael Debabrata Patra Yes
Shri Shaktikanta Das Yes
Statement by Dr. Shashanka Bhide

16. The official GDP growth estimate for Q2: 2023-24, YOY basis, turned out to be
surprisingly strong at 7.6%, following the growth of 7.8 per cent in Q1. The projected GDP
growth for Q2 in the October 2023 MPC meeting was 6.5 per cent, well below the NSO
estimates. Manufacturing and construction sectors recorded double digit growth rates of GVA
in Q2 offsetting the weak growth in agriculture & allied sectors and services. The QOQ
momentum in Q2 in the manufacturing and construction sectors, two drivers of GVA growth,
was above their decadal average (2011-12 to 2019-20) for the quarter, pointing to the
significant growth momentum in these sectors.

17. Although greater optimism in terms of output demand conditions or business turnover for
Q2 by the manufacturing firms relative to the service sector firms was reflected in the RBI’s
sample surveys of firms conducted during July-September, the actual growth in GVA in
manufacturing has exceeded the expectations. At the aggregate level, GDP growth was in sync
with some of the indicators of broader economic activity, such as PMI, non-food credit, GST
collections and toll collections. Financial performance of the corporate sector for Q2 indicates
improved profit earnings and spending on fixed assets in line with the overall GVA growth and
the rise in gross fixed capital formation. We may also note that sharp increase in GVA in
manufacturing in Q2 is in contrast to the stable overall capacity utilisation rates for the sector
indicating the likely significant improvements in revenue realisations and cost efficiency in the
present context.

18. The growth momentum while strong, it points to a few concerns as we go forward. Uneven
performance, both on the production and demand fronts is evident. On the production side, the
agriculture & allied sector and services registered low and modest rates of growth in Q2. The
IIP for consumer durables has shown weak growth. On the demand side, real Private Final
Consumption Expenditure registered modest 3.1% YOY growth as compared to 11% growth in
real Gross Fixed Capital Formation. The November 2023 round of RBI’s Consumer
Confidence Survey shows improvement in total consumer expenditure over the previous round,
both on current period and one-year ahead basis. In the recent few rounds of the survey, the
year ahead outlook has been marked by consistently positive net response rates on non-
essential spending. On the external demand, the recent projections for global output growth in
2024 by IMF (October 2023) are slightly lower than in 2023 but expect world trade volumes to
improve significantly. Sustained growth in fixed capital formation may also require
maintaining the pace of government capital outlay.

19. Taking into account both the positive drivers of growth and vulnerabilities, the GDP
growth projections for the remaining two quarters of 2023-24 are at 6.5 for Q3 and 6.0 per cent
for Q4, taking the projections for FY 2023-24 to 7.0 per cent over the previous year. The
projected growth for H2: 2023-24 is 6.3 per cent compared to 5.9 per cent for the same period
in our October 2023 assessment. The projected GDP growth rates for the first three quarters of
2024-25 are 6.7, 6.5 and 6.4 per cent.

20. The headline inflation dropped to 5 per cent or lower in September (5%) and October
(4.9%). Among the three major constituents – food, fuel and core – only food inflation
remained above 6% in September and October. CPI Food inflation has remained above 6%
since July this year, although pace of the increase has declined. Within the food & beverages
category of consumption, cereals, pulses and spices registered double digit percentage price
rise YOY basis in October. CPI for Eggs, milk and fruits rose by more than 6 per cent in
October. Impact of the unfavourable rainfall conditions during the monsoon season this year
has meant likelihood of weak kharif harvest for some of the main crops with implications to
food inflation.

21. The weak global demand conditions have kept the commodity and energy prices in the
international markets in check. However, continued geopolitical conflicts cast a shadow on
supply chains with potential to disrupt global energy and commodity markets and inflation
trends. The increased pace of economic activity in the last two quarters, driven mainly by
investment spending has not led to rise in core inflation. Supply side policy measures by the
government, particularly in the case of food commodities have also helped in reducing the
price impact of supply shocks.

22. Inflation expectations survey of urban households conducted by RBI points to the sustained
decline in 3 month-ahead inflation expectation since September 2022 up to November 2023,
barring a spike in January 2023. The one year-ahead expected inflation rate has moved up
marginally in the November round of the survey after following a declining trajectory since
September 2022.

23. While the core CPI inflation rate (excluding food and fuel components) fell below 5% in
Q2: 2023-24 and dropped to 4.3% in October, price pressures in the non-farm sectors are
vulnerable to shocks to input costs. Early results of RBI’s enterprise surveys conducted during
the latter part of October and November point to some divergence in the expectations of cost
pressures and selling prices between manufacturing and other firms. Larger proportion of
sampled manufacturing firms indicate expectations of softening of selling prices in Q4 relative
to this proportion in Q3 but larger proportion of firms in the services and infrastructure sectors
expect the selling prices to rise in the same period. The inflation expectations survey of
business sector conducted by the IIMA in October 2023 points to a slight increase in one year-
ahead ‘unit cost based inflation’ from 4.39% in September 2023 to 4.44% in October 2023 . 1

24. The most recent RBI’s Survey of Professional Forecasters projects headline inflation rate
for Q3: 2023-24 till Q1: 2024-25 declining from 5.4 per cent to 5.2 per cent and dropping to
3.9 per cent in Q2: 2024-25. The core inflation (CPI excluding items of Food, Pan, Tobacco
and Intoxicants and Fuel & Light) is projected to drop from 4.3 per cent in Q3: 2023-24 to 4.1
per cent in Q1: 2024-25 but increase to 4.4 per cent in Q2: 2024-25.

25. Considering a range of factors influencing the inflation pattern in the short-term, the
headline inflation is projected at 5.6% and 5.2% in Q3 and Q4: 2023-24, respectively, and
5.2% in Q1: 2024-25 followed by 4% in Q2 and 4.7% in Q3.

26. Overall, the economy presently reflects the impact of strong drivers for growth despite the
unfavourable conditions in some respects. As noted earlier, adverse monsoon rainfall
conditions, especially distribution of rainfall over the monsoon period and across the regions,
have meant slower growth of agricultural output and rural demand. The weak external demand
conditions have affected the export sector. The uneven feature of growth points to
vulnerabilities. While investment has fuelled growth in demand, private consumption demand
has grown much more slowly. One reason for the slower growth in consumption relates to the
‘base effects’ in H1 given the on-going ‘catch up’ overcoming the pandemic shock. But the
uneven sectoral growth patterns also point to other factors influencing output noted earlier with
respect to agriculture and external demand.

27. Inflation has moderated in the context of the continued pressure the cumulative monetary
policy actions as well as supply side measures by the government in crucial consumption
sectors have exerted. The weak external demand conditions have also meant favourable input
prices in the international markets. However, food inflation is a concern in the short term.
There remain significant risks of the impact of the on-going geopolitical conflicts on
particularly fuel prices and consequently on both fuel and core inflation rates.

28. Given that inflation remains well above the target over the short term, with the projected
headline CPI rate of above 5% up to Q1: 2024-25, there is a need to continue the policy
support for sustaining the trajectory to the target.

29. Therefore, I vote:

i) to keep the policy repo rate unchanged at 6.50 per cent, and

ii) to remain focused on withdrawal of accommodation to ensure that inflation progressively

aligns with the target, while supporting growth.

Statement by Dr. Ashima Goyal

30. There are more signs that global interest rates may have peaked. Fears that rates may be
higher for longer have also faded as the US Fed has recognized that rates are restrictive already
and becoming more so as inflation falls. Pointing to the 1970s to justify higher rates is not
valid since inflation has not been high for as long as it was then and expectations remain
anchored. International oil prices have also softened despite cartel action. But geopolitics
continues to remain a threat.

31. Moreover, recent experience has underlined the freedom Indian rate setters have from
international rates. Debt and equity inflows returned as rate differentials narrowed.

32. Indian growth has exceeded expectations again. Manufacturing performance is strong.
There are more indications of the expected turnaround in private investment. While cement and
steel production have been robust for long, IIP and imports of capital goods, banks’ project
finance, firms’ investment intentions and fixed assets have also risen. Rising cash and reserves
makes firms less dependent on household savings for financing.

33. The recent state election results reduce uncertainty around national elections and policy so
more investment plans should be fast-tracked. But areas of weakness remain in consumption,
IT and merchandise exports. Employment offers have slowed in IITs.

34. The centre has demonstrated commitment to fiscal consolidation in terms of sticking to the
announced path of deficit reduction, higher share of spending on investment and discipline on
off-budget items. Buoyant revenues are able to absorb a large post-pandemic subsidy burden.
As countercyclical macroeconomic policy smooth’s shocks and delivers a real interest rate less
than the real growth rate, the denominator rises, reducing debt and deficit ratios .
2

35. Headline inflation is expected to be within the tolerance band at 5.4% in FY24 and to fall
to 4% in Q2 FY25 but rise to 4.7 in Q3. Core inflation shows a broad based moderation falling
from 6.1 in 2022-23 to 4.8 in Q2 FY24. Professional forecaster’s figure for core inflation in Q3
is at 4.4%.

36. There is a view that stronger growth will raise core inflation. But even with real GDP
growth at 7% it does not necessarily imply potential output is reached implying excess demand
and pressures on core inflation if reforms are raising structural growth.

37. Some research defines potential output in terms of expected inflation, and this is a forward-
looking way to estimate it given India’s large underemployed population and rising investment
—output is below potential if core inflation is below acceptable upper limits . Time series
3

methods of estimating potential output are backward-looking, with too much weight on recent
growth.

38. Why has core inflation come in lower than expectations even as growth recovered?

39. There were no second round effects raising wages from the earlier commodity price shocks
since Indian labour markets are slack.

40. Currently, falling costs and healthy sales have raised profits, despite factors that are
restraining demand in India. Some firms have reversed earlier price increases that passed on
higher costs. Higher sales help spread costs. Many firms had restructured during the pandemic
to reduce costs. There is evidence that the mark-up on costs is countercyclical . Lower price
4

and higher volumes is a strategy that delivers profits in India. Moreover, FMCG majors face
competition in 2 and 3 tier markets from many new regional entrants.

41. Investment is expanding capacity so that utilization has not increased despite good output
growth.

42. There is evidence that firm’s inflation expectations are well-anchored around 4% . 5

43. The government continues to take supply-side action to moderate short term price spikes as
well as improve capacities in the long-run.

44. Indian oil majors are profitable again despite recent volatility in oil prices and will be able
to pass on benefits to consumers if international oil prices fall sustainably below USD 80 per
barrel. Current trends are towards this.

45. All this continues to reduce costs for firms. In these circumstances, core inflation should
continue to converge towards 4% and headline should converge to a stable core despite any
further transient supply shocks. New data affects outcomes within a structure. It is necessary to
pay attention to the structure and context.

46. If inflation sustainably approaches 4% by the middle of 2024 real rates can easily become
too high if nothing is done. A repo of 6.5% in 2018 and tight liquidity with a headline inflation
of around 4%, even though core inflation was around 6%, proved severely deflationary. Both
headline and core inflation fell steeply over the next year.

47. In this meeting, however, I vote for keeping the repo rate and the stance unchanged, in
order to watch the impact of an expected rise in food inflation over the next couple of months,
since repeated supply shocks are a concern. Even so, as yet they have not been able to raise
inflation expectations or reverse the decline in core inflation.

48. Despite the stance, I expect the weighted average call rate (WACR) to ease away from the
upper end of the LAF corridor towards the repo rate as government cash balances are drawn
down and measures are taken to reduce liquidity hoarding by banks. Under inflation targeting,
liquidity is endogenous and is expected to adjust to keep short rates near the repo rate set by
the MPC. The RBI had clarified post inflation targeting that its ‘operating procedure aims at
6

modulating liquidity conditions so as to achieve the operating target, i.e., to anchor the WACR
around the policy rate’ and ‘MSF rate and the fixed overnight reverse repo rate define an
informal corridor for limiting intra-day variations in the call rate.’ Understanding this should
alleviate the markets concern that liquidity can suddenly dry up. While under the current stance
WACR may stay largely in the upper half of the LAF corridor, it cannot persistently exceed it.

49. Pass-through continues as old deposits and loans are re-priced, but the stance, as well as
credit growth continuing to exceed deposit growth, should persuade banks of the virtues of
passing through more of the 250bps repo rate rise to increase their primary liquidity.

Statement by Prof. Jayanth R. Varma

50. Current indications are that, after many difficult quarters, the economic environment is
turning more benign in terms of both inflation and growth. The challenge for monetary policy
is to facilitate this benign outcome where inflation trends down and growth remains robust.

51. This requires two things. First, a restrictive monetary policy must be maintained long
enough to glide inflation to its target of 4%. Second, as inflation drops well below the upper
tolerance band, it is necessary to prevent the real interest rate from becoming excessive. At
present, projected inflation two to four quarters ahead averages below 4.75%. The prevailing
money market interest rates of 6.75% (close to the MSF rate) therefore represent a real interest
rate of more than 2%. Three years of high inflation do justify a strong anti-inflationary
monetary policy, but in my view a real rate of 2% clearly exceeds the optimal rate. In coming
months, as we become more confident about the downward trajectory of inflation (apart from
transient food price spikes), there would be a compelling case for continually calibrating the
nominal policy rate so as to keep the real interest rate slightly below 1.5% (on the basis of
projected inflation 3-5 quarters ahead).

52. For these reasons, I vote for maintaining the repo rate at 6.50%, but express my
reservations on the stance. I believe that a stance is not needed at all at this stage. If at all there
is a stance, it should be neutral.

Statement by Dr. Rajiv Ranjan

53. I began my October statement with three global trends to be closely watched – crude oil
prices, US yields and US dollar, all of which were rising then. Oil prices have decreased, yields
have softened, and the US dollar has weakened since the last policy. Thus, we draw comfort
from the reversal of these trends in this December policy. In addition, global commodity prices
have eased further. The impact of these dynamics is seen globally in terms of faster than
expected decline in inflation of advanced countries and the conjecture that the apprehension of
‘higher for longer’ may not last long. Domestically, improvement in manufacturing profit with
easing of input cost pressures and decline in core inflation is clearly observed. Thus, despite
continuing overall global uncertainty, the macroeconomic environment in advance and
emerging market economies has not been adversely impacted to the same extent as it was
expected, not a long time ago. In fact, the global economy seems to have dodged a hard
landing, though it continues to remain vulnerable to slow down risks.

54. Since the last policy, we are in a relatively firmer footing on our domestic macros in terms
of inflation and growth. The moderation in CPI to 4.9 per cent in October 2023 was driven by
the fall in food and core (CPI excluding food and fuel) inflation along with deflation in the fuel
group. Since September, core disinflation also gathered pace, softening by about 60 basis point
in a span of two months to 4.3 per cent in October or by about 2 percentage points from a peak
value of 6.2 per cent in January. Even within core, services inflation at 3.6 per cent was at the
7

lowest level since the start of the 2012=100 series. Core goods inflation, from a peak of 7.1 per
cent in February 2023 has since then sequentially moderated to 5.0 per cent in October.
Various exclusion based and statistical trimmed mean measures of core inflation also softened
in the range of 60-120 bps between August and October. Going forward, core inflation
pressure could remain muted, as our monetary policy actions play out and softer growth in
input costs and selling prices of the manufacturing sector keep price pressures contained.
Concerns on elevated food inflation, however, is a major source of uncertainty for the inflation
outlook.

55. On the growth front, the economy is running at full steam. Growth has been resilient and
continuously surprising us on the upside over last two releases. The seasonally adjusted
momentum in Q2 at 4.3 per cent was stronger than Q2 last year (3.2 per cent) and the pre-
COVID average for Q2 (1.6 per cent). This momentum is likely to continue in Q3 and Q4 of
2023-24. It is important to note that for the first time in Q2:2023-24, the fault lines in India’s
growth story since the pandemic – tepid private investment and rural demand – seem to be
gaining traction. This augurs well for the long-term growth trend, particularly, investment
plays a larger role in terms of supply augmentation and improving potential growth in the
medium to long-term. India has successfully accumulated capital stock over the past decades
and continues to invest in capital formation, led by Government capital expenditure, as
reflected in the recent GDP data release. Gross Fixed Capital Formation (GFCF), a proxy for
investments, increased by 11 per cent in Q2. We are also in an advantageous position in terms
of contribution to potential output through labour and total factor productivity (TFP) channels.
India is in the forefront of technology-aided digitalisation with increasing internet penetration
and mobile phone usage. Greater formalisation and digitalisation of our economy is giving a
8

boost to TFP growth. With respect to human capital, India has a perceptible advantage in terms
of demographic dividend and the economy could benefit from it. Taken together, capital and
9

TFP, along with favourable demographic dividends, could have led to a sustainable increase in
the potential level of output of the economy. This change in structural features of the economy
could explain to a large extent the observed dynamics of robust growth numbers along with
falling core inflation.

56. The best way monetary policy can support this high growth trajectory is by maintaining its
commitment to price stability. While monetary policy has succeeded in getting headline
inflation into the tolerance band, it is still above the target and continues to remain vulnerable
10

to supply shocks. The below 5 per cent print in October 2023 may reverse as early as next
month. In essence, while a durable growth path backed by consumption and investment is
visible from here on, the same cannot be said about disinflation yet. Hence, monetary policy
must continue treading a cautious path and remain prudent in its approach. We need to
continue with the pause on the policy rate in this meeting while observing every incoming
information impacting growth-inflation dynamics. Given that inflation remains above target,
our stance of withdrawal of accommodation also has to continue to aid fuller transmission.
Having taken a pause during the last few policies, there could be an argument for a change in
stance to neutral. I feel this is not the right time. Apart from being premature, a change to
neutral stance may have to bear the brunt of the collateral damage caused by wrong signalling,
particularly with looming uncertainties on the horizon and when market expectations are
running ahead of policy intent. We need to consolidate the gains achieved so far. Accordingly,
I vote for a pause on rate and continue with the stance.

Statement by Dr. Michael Debabrata Patra

57. Inflation remains highly vulnerable to food price spikes, as the spurt in momentum in daily
data on key food items for the month of November and early December reveal. This repetitive
incidence is causing the accumulation of price pressures in the system and could impart
persistence, reflected in a left-tailed skew in the distribution of inflation. Households are
already wary: although they expect inflation to remain unchanged three months ahead, they are
more unsure about this prognosis than they were two months ago. Over the year ahead,
however, they are more sure than in the past that inflation will likely rise. Consumers too
reveal more pessimism about inflation a year ahead than when they were surveyed in
September. Consequently, monetary policy has to remain on high alert with a restrictive stance.

58. In my view, food prices in India are the true underlying component of inflation. They also
generate non-trivial external effects that affect other components of inflation as well as
expectations. When these spillovers occur and are significant, monetary policy has to pre-
emptively act to prevent generalization, irrespective of the fact that the initial shocks emanate
from outside the realm of its influence. Hence the stance of withdrawing accommodation and a
readiness to take appropriate action must continue until their impact is seen off without second
order effects.

59. The recent GDP data release reinforces the view that the output gap in India has turned
positive since the beginning of the year and remains so. This points to the likelihood of demand
pull shaping the course of inflation outcomes in the period ahead, amplifying future supply
shocks. Over the rest of the year, rising momentum of activity will drive growth offset by
waning of favourable base effects. Rural demand is gradually improving while urban demand
remains ebullient. Investment has emerged as the mainstay of aggregate demand. It remains to
be seen if the recent upturn in exports of merchandise sustains. The strength of underlying
domestic demand is also being reflected in the pick-up in non-oil non-gold imports after a
prolonged contraction.

60. Against this backdrop, the monetary policy reaction function needs to assign a higher
weight to inflation relative to growth in a forward-looking sense. Accordingly, I vote to
maintain status quo on the policy rate and continue with the stance of withdrawal of
accommodation.

Statement by Shri Shaktikanta Das

61. The years 2020 to 2023 will perhaps go down in history as a period of ‘Great Volatility’. In
this environment, the Indian economy presents a picture of resilience and momentum as
reflected in the higher than anticipated GDP growth in Q2:2023-24, surprising everyone on the
upside. Reflecting this, our growth projection for the current year has been revised upward to 7
per cent. We expect this growth momentum to continue next year also.

62. The softening of headline inflation to 4.9 per cent in October 2023 gives further credence
to the fact that the heightened and generalised inflation pressures seen in the summer of 2022 is
behind us. This disinflation is underpinned by steady moderation in CPI core inflation, caused
by easing of price momentum across core goods and services. Core inflation in October was
the lowest since early 2020 and would show that our monetary policy actions are working.

63. Moving forward, while food inflation has receded from the highs seen in July, it remains
elevated. The overall inflation outlook is expected to be clouded by volatile and uncertain food
prices and intermittent weather shocks. In the immediate months of November and December,
a resurgence of vegetable price inflation is likely to push up food and headline inflation. We
have to remain highly alert to any signs of generalisation of price impulses that may derail the
ongoing process of disinflation.

64. GDP growth is expected to remain resilient. Financial conditions are stable. Inflation is
moderating, but we are still quite a distance away from our goal of reaching 4 per cent CPI on
a durable basis. The projected inflation (4.7 per cent) in Q3 of next year, i.e., one year from
now, is perilously close to 5 per cent. In these circumstances, monetary policy has to be
actively disinflationary. Any shift in policy stance now would be premature and risky. Further,
with past rate hikes still working through the economy, it would be desirable to closely monitor
their full play out. The conditions ahead could be fickle and call for prudent evaluation of the
emerging situation. Considering all the above factors, a pause in rate action and remaining
focused on withdrawal of accommodation is considered necessary in this meeting of the MPC.
Accordingly, I vote for keeping the policy repo rate unchanged and continuing with the focus
on withdrawal of accommodation. We have to remain vigilant and ready to act effectively in
our journey towards 4 per cent inflation target.

(Yogesh Dayal)
Chief General Manager

Press Release: 2023-2024/1531

1
Business Inflation Expectations Survey (BIES)-October 2023, Misra Centre for Financial Markets and Economy,
Indian Institute of Management, Ahmedabad.

2
Goyal, A. 2023. 'Indian Fiscal Policy: A possible escape route.' IGIDR Working Paper no. WP-2023-010. Available
at: http://www.igidr.ac.in/pdf/publication/WP-2023-010.pdf

3
Goyal, A. and S. Arora. 2013. ‘Inferring India's Potential Growth and Policy Stance’. Journal of Quantitative
Economics, 11(1 & 2): 60-83. January-July; Svensson, L. E.O. Woodford, M. 2003. ‘Indicator variables for optimal
policy’, Journal of Monetary Economics, Volume 50, Issue 3, Pages 691-720.

4
Goyal, A. 1994. ‘Industrial Pricing and Growth Fluctuations in the Indian Economy’, Indian Economic Review, Vol.
29(1).

5
The IIM Ahmedabad survey has given firms’ price expectations at around 4% since December 2022.

6
RBI (2015) Monetary Policy Report, April, Box IV.1, pp 26, released after the February 2015 Agreement on
Monetary Policy Framework between the Government of India and the RBI, available
at https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/2015HYED1215458ES216FE667.pdf

7
Core CPI saar, from 6 per cent in January 2023, has softened to 3.6 per cent in October 2023. Threshold core
CPI diffusion indices for price increases of greater than 6 per cent (saar) and 4 per cent (saar) remained in
contraction zone over much of 2023-24 so far.

8
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=187655

9
United Nations Population Fund.

10
Refer to my June 2023 statement for the theoretical difference between inflation target and tolerance band
around target.