As expected, the MPC kept all the policy rates unchanged and retailed the monetary policy stance as one of “withdrawal of accommodation” 


Growth expectation for FY 24 upped to 7% from previous 6.5%.  This was to be expected after the strong growth momentum we observed in Q2 number announced last month.  The Governor also pointed out that private consumption should gain support from gradual improvement in rural demand.   He also said that drag from external demand should also moderate.  These should be a boost higher growth too. 


RBI kept their inflation expectation for FY 24 unchanged at 5.4% in the background of uncertain food prices as well as RABI sowing as well as global sugar prices that have remained elevated.  This is despite the recent big fall in global crude prices as the Central Bank takes into account the fact that crude oil prices are very volatile and with further output cuts it may rise again. 

Forward Guidance: 

Governor’s statement that inflation target of 4% is yet to be reached and that they have to stay the course indicates that the monetary policy will remain tight and we can expect no change in rates for now.  They are also not swayed by expectation in global markets about US and European rate cuts next year and they would like to observe how things evolve vis-à-vis expectations. In our view, any cut in rates can happen only in Q2 of FY 25.    


Governor’s comforting statements about external sector being manageable and rupee’s stability and low volatility compared to the peers is not surprising.  We do agree that rupee has stayed stable even as we have observed big swings in other global currencies which have reflected stronger domestic fundamentals rather than reacting to global volatility. 

Reserves at USD 604 as on December 1st is a good retracement, but no mention is made about the forward book of RBI (which we feel is reduced to a great extent now).  We will get the picture of the combined book spot and forward reserves from the next monthly bulletin of RBI. 


The Governor said that the net position under the liquidity adjustment facility (LAF), which measures system liquidity, entered deficit mode for the first time in September 2023 following a nearly four-and-ahalf-year break since May 2019.  The overall tightening of liquidity conditions is attributed mainly to higher currency leakage during the festive season, government cash balances and Reserve Bank’s market operations. Keeping in mind that their stance of liquidity withdrawal was automatically achieved under the above conditions, RBI did not conduct any OMOs announced in earlier meeting.  This also means that RBI keen to maintain liquidity prudently and flexibly in balance and not to allow higher surplus or deficit.   


The Governor reiterated its pro-active approach in managing risks in banking sector due to lending, referring to their action in November of increasing risk weights on unsecured consumer credit exposures of banks and NBFCs (including credit card receivables) as well as bank lending to NBFCs, other than housing finance companies (HFCs). The regulated entities had also been advised to put in place Board approved limits for various sub-segments under consumer credit, specifically unsecured consumer credit. 

REVIEW OF THE REGULATORY FRAMEWORK FOR HEDGING OF FOREIGN EXCHANGE RISKS – Governor’s speech made an important announcement on markets as under. 

The regulatory framework for foreign exchange derivative transactions was last reviewed in 2020. Based on market developments and feedback received from market participants, the extant regulatory framework for forex derivative transactions has been refined and consolidated under a single master direction. This will further deepen the forex derivatives market by enhancing operational efficiency and ease of access for users. 

We expect more relaxations for large corporates to hedge themselves in the market.  We shall revert to you as and when the directions are issued.   


The forex implication of the policy is almost NIL except that it can be seen as continued vigilant approach of the Central Bank keeping both growth and inflation in mind, which is laudable.  

As for the policy rate is concerned, as growth remains robust and inflation uncertainty abounds, it is very unlikely that the RBI will go for a policy rate cut before 2nd quarter of FY25, even if other major central banks do cut in line with current market discounting.  However, the Indian bonds will continue to attract flows due to (1) its high nominal yield; (2) expectation of large funds allocated on account of inclusion of Indian Bonds in Global Bond Index.  

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