In the recent years, the world has gone through one crisis after another; and the pattern continues. Even against this backdrop, the Indian economy exhibits strong fundamentals, together with financial stability and positive growth momentum. Nevertheless, we need to remain vigilant in an unsettled global environment. The new realities brought about by technological advancements; supply chain realignments; trade and financial fragmentation; and climate change pose opportunities as well as challenges. In this milieu, India looks ready to embark upon a new era of transformation aided by a favourable demography1, improving productivity and technology, and a conducive policy environment. The confluence of these factors brightens the prospects of sustained high growth in India in the years ahead.2 2. As the Reserve Bank approaches its centenary year, RBI@100, it will gear up even more to remain future-ready for India’s fast growing economy. It will take steps to enhance India’s global footprint. For our journey during the next decade, we have drawn up strategies consisting of policy actions towards positioning the Reserve Bank as a model central bank of the global south. The agenda for the run-up to RBI@100 is documented in the Annex to this statement. I urge the keen observers of the Indian economy and financial system to take a close look at these action plans. This is not a static document as we are living in a dynamic world. Our endeavour will be to continually update it as may be required. Decisions and Deliberations of the Monetary Policy Committee (MPC) 3. The Monetary Policy Committee (MPC) met on 5th, 6th and 7th June 2024. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, it decided by a 4 to 2 majority to keep the policy repo rate unchanged at 6.50 per cent. Consequently, the standing deposit facility (SDF) rate remains 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 by a majority of 4 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. 4. I shall now briefly set out the rationale for these decisions. The inflation-growth balance is moving favourably. Growth is holding firm. Inflation continues to moderate, mainly driven by the core component3 which reached its lowest level in the current series in April 2024.4 The deflation in fuel prices is ongoing.5 Food inflation, however, remains elevated.6 5. While the MPC took note of the disinflation achieved so far without hurting growth, it remains vigilant to any upside risks to inflation, particularly from food inflation, which could possibly derail the path of disinflation. Hence, monetary policy must continue to remain disinflationary and be resolute in its commitment to aligning inflation to the target of 4.0 per cent on a durable basis. Sustained price stability would set strong foundations for a period of high growth. Accordingly, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting. The MPC also decided to remain focused on withdrawal of accommodation to ensure anchoring of inflation expectations and fuller policy transmission7. Assessment of Growth and Inflation Global Growth 6. Global growth is sustaining its momentum in 2024 and is likely to remain resilient, supported by rebound in global trade.8 Inflation is easing, but the final leg of this disinflation journey may be tough. Central banks remain steadfast and data-dependent in their fight against inflation. Market expectations regarding the timing and pace of interest rate cuts are also changing with incoming data and central bank communication.9 US dollar and sovereign bond yields remain range bound. While gold prices have surged on safe haven demand, equity markets have gained in both advanced and emerging market economies since the last MPC meeting. Domestic Growth 7. The provisional estimates released by the National Statistical Office (NSO) placed India’s real gross domestic product (GDP) growth at 8.2 per cent in 2023-24.10 During 2024-25 so far, domestic economic activity has maintained resilience. Manufacturing activity continues to gain ground on the back of strengthening domestic demand. The eight core industries posted healthy growth in April 2024. Purchasing managers’ index (PMI) in manufacturing continued to exhibit strength in May 2024 and is the highest globally.11 Services sector maintained buoyancy as evident from available high frequency indicators.12 PMI services stood strong at 60.2 in May 2024 indicating continued and robust expansion in activity. 8. Private consumption, the mainstay of aggregate demand, is recovering, with steady discretionary spending in urban areas13. Revival in rural demand is getting a fillip from improving farm sector activity.14 Investment activity continues to gain traction,15 on the back of ongoing expansion in non-food bank credit.16 Merchandise exports expanded in April with improving global demand. Non-oil non-gold imports entered positive territory.17 Services exports and imports rebounded and posted a strong growth in April 2024.18 9. Looking ahead, the forecast of above normal south-west monsoon by the India Meteorological Department (IMD)19 is expected to boost kharif production and replenish the reservoir levels.20 Strengthening agricultural sector activity is expected to boost rural consumption. On the other hand, sustained buoyancy in services activity should continue to support urban consumption. The healthy balance sheets of banks and corporates; government’s continued thrust on capex; high capacity utilisation;21 and business optimism augur well for investment activity. External demand should get a fillip from improving prospects of global trade. Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7.2 per cent with Q1 at 7.3 per cent; Q2 at 7.2 per cent; Q3 at 7.3 per cent; and Q4 at 7.2 per cent. The risks are evenly balanced. Inflation 10. CPI headline inflation softened further during March-April, though persisting food inflation pressures offset the gains of disinflation in core and deflation in the fuel groups.22 Despite some moderation, pulses and vegetables inflation remained firmly in double digits. Vegetable prices are experiencing a summer uptick following a shallow winter season correction.23 The deflationary trend in fuel was driven primarily by the LPG price cuts in early March.24 Core inflation softened for the 11th consecutive month since June 2023.25 Services inflation moderated to a historic low and goods inflation remained contained.26 11. The exceptionally hot summer season and low reservoir levels may put stress on the summer crop of vegetables and fruits. The rabi arrivals of pulses and vegetables need to be carefully monitored.27 Global food prices have started inching up.28 Prices of industrial metals have registered double digit growth in the current calendar year so far.29 These trends, if sustained, could accentuate the recent uptick in input cost conditions for firms.30 12. On the other hand, the forecast of above normal monsoon bodes well for the kharif season. Wheat procurement has surpassed last year’s level. The buffer stocks of wheat and rice are well above the norms.31 These developments could bring respite to food inflation pressures, particularly in cereals and pulses. The outlook on crude oil prices remains uncertain due to geo-political tensions. Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 per cent with Q1 at 4.9 per cent; Q2 at 3.8 per cent; Q3 at 4.6 per cent; and Q4 at 4.5 per cent. The risks are evenly balanced. What do these Inflation and Growth Conditions mean for Monetary Policy? 13. The developments relating to growth and inflation are unfolding as per our expectations. When the projected GDP growth of 7.2 per cent for 2024-25 materialises, it will be the fourth consecutive year with growth at or above 7 per cent. Headline CPI continues to be on a disinflationary trajectory. Monetary policy has played an important role in this process. This is evident from the decline in headline inflation by 2.3 percentage points between Q1: 2022-23 and Q4 of 2023-24.32 Supply side developments and government measures also contributed to this moderation of headline inflation. Repeated food price shocks, however, slowed down the overall disinflation process.33 14. According to our projections, the second quarter of 2024-25 is likely to see some correction in headline inflation, but this is likely to be one-off on account of favourable base effects and may reverse in the third quarter.34 At the current juncture, the uncertainties related to the food price outlook warrant close monitoring, especially their spillover risks to headline inflation.35 In parallel, the behaviour of the core component also needs to be watched carefully. We need a descent of inflation to the 4 per cent target on a durable basis, while supporting growth. 15. There is a view that in matters of monetary policy, the Reserve Bank is guided by the principle of ‘follow the Fed’.36 I would like to unambiguously state that while we do keep a watch on whether clouds are building up or clearing out in the distant horizon, we play the game according to the local weather and pitch conditions. In other words, while we do consider the impact of monetary policy in advanced economies on Indian markets, our actions are primarily determined by domestic growth-inflation conditions and the outlook. Liquidity and Financial Market Conditions 16. During the current financial year so far, system liquidity transited from surplus to deficit conditions, and back to surplus in early June.37 In consonance with the commitment made in the April policy statement of remaining nimble and flexible in liquidity management and in view of the shifting liquidity dynamics, the Reserve Bank mopped up surplus liquidity through variable rate reverse repo (VRRR) auctions during the first half of April, while injecting liquidity through variable rate repo (VRR) operations in the later part of April and in May.38 In the first week of June, VRRR auctions have been conducted.39 Banks’ recourse to the marginal standing facility (MSF) under the liquidity adjustment facility (LAF) remained low during 2024-25 so far.40 17. Mirroring the liquidity dynamics, the weighted average call rate (WACR), on an average, remained close to the middle of the corridor.41 Across the term money market segment, the yields on certificates of deposit (CDs), commercial papers (CPs) issued by non-banking financial companies (NBFCs) and 3-month treasury bills (T-bills) also eased.42 In the credit market, monetary transmission remains ongoing.43 18. As you would be aware, the Central Board of the Reserve Bank decided to transfer ₹2.11 lakh crore as surplus to the Central Government for the accounting year 2023-24. As the economy remains robust and resilient, the Board decided to utilise this opportunity to increase the risk provisioning under the contingent reserve buffer (CRB) to 6.5 per cent of the Reserve Bank’s balance sheet for 2023-24 from 6.0 per cent in 2022-23.44 This would further strengthen the Reserve Bank’s balance sheet. Prudence is at the core of our standard operating procedure. 19. The Indian rupee (INR) moved in a narrow range with low volatility during 2024-25 so far (up to June 5), despite trading under pressure amidst foreign portfolio investment (FPI) outflows.45 The relative stability of the INR bears testimony to India’s sound and resilient economic fundamentals, macroeconomic and financial stability, and improvement in the external outlook. 20. Looking ahead, the Reserve Bank will continue to be nimble and flexible in its liquidity management through main and fine-tuning operations in both repo and reverse repo. We will deploy an appropriate mix of instruments to modulate both frictional and durable liquidity so as to ensure that money market interest rates evolve in an orderly manner which preserves financial stability. As our actions over the recent period have shown, the Reserve Bank stands committed to maintain stability and orderliness in all segments of financial markets and institutions regulated by it. Financial Stability 21. The annual financial results for 2023-24 indicate that the banking system remained sound and resilient, backed by improvement in asset quality, enhanced provisioning for bad loans, sustained capital adequacy and rise in profitability.46 The non-banking financial companies (NBFCs) also displayed strong financials in line with the banking sector. Notably, the gross non-performing assets (GNPAs) of scheduled commercial banks (SCBs) and NBFCs are below 3 per cent of total advances as at end of March 2024.47 It is important that the Regulated Entities (REs) should continue to improve their governance standards, risk management practices and compliance culture across the organisation. 22. In November last year, we had flagged certain concerns on excessive growth in the unsecured retail loans and over-reliance of NBFCs on bank funding. Recent data suggests that there is some moderation in these loans and advances.48 We are closely monitoring the incoming data to ascertain if further measures are necessary. The Boards and top management of REs should ensure that risk limits and exposures for each line of business are kept well within their respective risk appetite framework. The persisting gap between credit and deposit growth rates warrants a rethink by the Boards of banks to re-strategise their business plans. A prudent balance between assets and liabilities has to be maintained. 23. Customer protection remains on top of the Reserve Bank’s priorities. In general, we have observed that guidelines on Key Facts Statement (KFS)49 are followed, but a few REs still charge fees, etc. that are not specified or disclosed in the Key Facts Statement (KFS). It has also been observed in some micro finance institutions and NBFCs that the interest rates on small value loans are high and appear to be usurious. The regulatory freedom enjoyed by the REs in respect of interest rates and charges should be used judiciously to ensure fair and transparent pricing of products and services. The Reserve Bank continues its constructive engagements with such financial entities to safeguard the interest of customers and ensure overall financial stability. External Sector 24. With lower trade deficit, robust services export growth50 and strong remittances, the current account deficit is expected to have moderated in Q4:2023-24.51 Services exports were predominantly driven by software exports, other business services and travel exports. The phenomenal rise of global capability centres (GCC) in India has provided a significant boost to India’s software and business services exports.52 India – with an expected 15.2 per cent share in world remittances in 2024 – continues to be the largest recipient of remittances globally. Overall, the current account deficit for 2024-25 is expected to remain well within its sustainable level. 25. On the external financing side, foreign portfolio investment (FPI) flows surged in 2023-24 with net FPI inflows at US$ 41.6 billion. Since the beginning of 2024-25, however, foreign portfolio investors have turned net sellers in the domestic market with net outflows of US$ 5.0 billion (till June 5). In 2023, India retained its position as the most attractive destination for greenfield foreign direct investment (FDI) in Asia Pacific.53 Gross FDI remained robust in 2023-24, but net FDI moderated.54 External commercial borrowings (ECBs) and non-resident deposits recorded higher net inflows as compared with the previous year.55 The amount of ECB agreements also grew markedly during the year.56 26. Touching a new milestone, India’s foreign exchange reserves reached a historical high of US$ 651.5 billion as on May 31, 2024. India’s external sector remains resilient and the key external vulnerability indicators continue to improve.57 Overall, we remain confident of meeting our external financing requirements comfortably. Additional Measures 27. I shall now announce certain additional measures. Review of Limit of Bulk Deposits in Banks 28. On a review of the bulk deposit limit, it is proposed to revise the definition of bulk deposits as ‘Single Rupee term deposit of ₹3 crore and above’ for SCBs (excluding RRBs) and SFBs. Further, it is also proposed to define the bulk deposit limit for Local Area Banks as ‘Single Rupee term deposits of ₹1 crore and above’, as applicable in case of RRBs. Rationalisation of Guidelines for Export and Import of Goods and Services under Foreign Exchange Management Act (FEMA), 1999 29. In view of the changing dynamics of international trade and in line with the progressive liberalisation of foreign exchange regulations, it is proposed to rationalise the extant FEMA guidelines on export and import of goods and services. This will further promote ease of doing business and provide greater operational flexibility to Authorized Dealer banks. Draft guidelines will be issued shortly for stakeholder feedback. Setting up a Digital Payments Intelligence Platform 30. The Reserve Bank has taken a number of measures over the years to deepen digital payments while ensuring their safety and security. These measures have boosted consumer confidence. Growing instances of digital payment frauds, however, highlight the need for a system-wide approach to prevent and mitigate such frauds. It is, therefore, proposed to establish a Digital Payments Intelligence Platform for network level intelligence and real-time data sharing across the digital payments’ ecosystem. To take this initiative forward, the Reserve Bank has constituted a committee to examine various aspects of setting up the Platform. Inclusion of Recurring Payments with Auto-Replenishment Facility under the e-mandate Framework 31. The adoption of e-mandates for recurring payment transactions has been increasing. It is now proposed to include payments, such as replenishment of balances in Fastag, National Common Mobility Card (NCMC), etc. which are recurring in nature but without any fixed periodicity, in the e-mandate framework. This will enable customers to automatically replenish the balances in Fastag, NCMC, etc. if the balance goes below the threshold limit set by them. This will enhance convenience in making travel / mobility related payments. Introduction of Auto-Replenishment of UPI Lite Wallet – Inclusion under the e-mandate Framework 32. UPI Lite was introduced in September 2022 to enable small value payments in a quick and seamless manner through an on-device wallet. To encourage wider adoption of UPI Lite, it is now proposed to bring it under the e-mandate framework by introducing a facility for customers to automatically replenish their UPI Lite wallets if the balance goes below the threshold limit set by them. This will further enhance the ease of making small value digital payments. HARBINGER 2024 – Innovation for Transformation 33. The Reserve Bank has taken several pioneering initiatives in recent years to encourage innovation in the fintech sector. One such key initiative is the global hackathon: ‘HaRBInger - Innovation for Transformation’. The first two editions of the hackathon were completed in the year 2022 and 2023, respectively. The third edition of the global hackathon, “HaRBInger 2024” with two themes, namely ‘Zero Financial Frauds’ and ‘Being Divyang Friendly’ will be launched shortly. Conclusion 34. At the Reserve Bank, our job demands poise, patience and perseverance. India’s recent economic progress, continued momentum in economic activity and the overall promising prospects validate our approach to policymaking. At the moment, the Indian economy is at an inflection point in its path towards greater transformational changes that will bring about more stability and growth. 35. On inflation, we are on the right track, but there is still work to be done. Globally, there are concerns that the last mile of disinflation might be protracted and arduous amidst continuing geopolitical conflicts, supply disruptions and commodity price volatility. In India, with growth holding firm, monetary policy has greater elbow room to pursue price stability to ensure that inflation aligns to the target on a durable basis. In its current setting, monetary policy remains squarely focused on price stability to effectively anchor inflation expectations and provide the required foundation for sustained growth over a period of time. The words of Mahatma Gandhi resonate here and I quote, “if we are sure of our path ….., we should go on striving for it incessantly and uninterruptedly.”58 Thank you. Namaskar. (Puneet Pancholy)
Chief General Manager Press Release: 2024-2025/452
Annex Aspirational Goals for RBI@100 in a Multi-Year Time Frame 1. Monetary Policy and Liquidity Management • Positioning the Reserve Bank as Leader of the Global South • Review of Monetary Policy Framework to address: -
Balancing price stability and economic growth from an Emerging Market Economy (EME) perspective; -
Refinements in monetary policy communication; and -
Spillovers to EMEs from private and public debt overhang in systemically important economies. 2. Globalisation of India’s Financial Sector • Financial Sector Reforms related to: -
Expanding banking domestically in consonance with national growth; -
Positioning 3-5 Indian banks among top 100 global banks in terms of size and operations; -
Deepening and modernisation of financial markets/institutions/infrastructure; and -
Supporting International Financial Services Centres Authority (IFSCA) to make GIFT City a leading international financial centre. 3. Making Reserve Bank’s Supervision a Global Model • Risk Focused Supervision: • Building ‘Through the Cycle’ Risk Assessment Framework by continuous Horizon Scanning and Holistic Risk Assessment; • Customer-centric supervision: Improving the conduct of SEs to protect and promote customers’ interests through appropriate supervisory focus; • Effective Corrective Actions: Focus on prudent supervisory judgement and assessing supervisory effectiveness; and • Creating a Data Analytics Universe. 4. Deepening and Universalisation of Digital Payment Systems – Domestically and Globally -
Internationalisation of India’s Payment Systems – UPI/RTGS/NEFT; -
Participation in Payment Systems Linkage Projects across countries – bilateral & multilateral; -
Increasing the domestic usage of digital payments – Har Payment Digital; and -
Phased implementation of Central Bank Digital Currency (e - Rupee). 5. Deepening Financial Inclusion - Focusing on Accessibility, Availability and Quality of financial services to all sections of the society.
6. Expanding Credit Availability -
Strengthen data collection; -
Comprehensive Credit Information Repository (CCIR) for supporting credit needs and monitoring; -
Unified Loan Interface (ULI); and -
Review of priority sector guidelines to proactively address emerging needs. 7. Capital Account Liberalisation and Internationalisation of the Indian Rupee (INR) -
Enabling availability of INR to non-residents for facilitating cross-border transactions in INR; -
Enhancing accessibility of INR accounts to Persons Resident Outside India (PROIs); -
Adopting a calibrated approach towards interest-bearing Non-Resident Deposits; and -
Promoting Indian Multi-national Corporations (MNCs) and Indian global brands through overseas investments. 8. Dealing with Climate Change -
Regulatory/Supervisory framework for addressing challenges arising from climate change; -
Finalising guidance for Regulated Entities (REs) to stress test their asset portfolio to assess impact of climate change; -
Macro stress testing the impact of climate change on REs from a financial stability perspective; -
Strengthening payment systems’ resilience to climate risks; -
Developing climate risk disclosure norms for REs; -
Providing inputs to government for finalising taxonomy on climate risks; and -
Publishing a risk management framework for managing climate-related financial risks. 9. Adoption of Artificial Intelligence/Machine Learning (AI/ML) in the Reserve Bank • Articulation of an AI Policy for the Bank. • Use of AI / ML in: -
Leveraging RegTech/SupTech for effective supervision; -
Management of Cyber Risk; and -
Forecasting, Nowcasting and Surveys. 10. Financial Sector Cloud Infrastructure -
Indian Financial Cloud: Establish a cost-effective cloud facility for the financial sector to enhance the security, integrity and privacy of financial sector data while facilitating scalability and business continuity; and -
Internal AI Cloud: Develop an enterprise-wide platform with AI/ML capabilities to enhance operational efficiency, productivity, data analytics, risk management, decision making and customer experience. 11. Transformational Shifts in Data Collection, Processing and Storage -
Developing Data Mesh with REs; -
Cloud Quantum Computing Services for Analytics; and -
Geo-tagging for supporting high frequency data analysis. 12. Safeguarding Users Against Payment Frauds -
Widening and deepening consumer awareness; -
Making payment systems more safe and secure; and -
Identifying and implementing solutions for proactive prevention and quick redressal of frauds. 13. Developing a Secure Global Financial Messaging Hub - Exporting financial networks and messaging systems as alternative platforms.
14. Making Reserve Bank’s Human Resources and Infrastructure Future Ready.
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