RBI’s Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6.5 percent for the ninth consecutive meeting. Four of the six MPC members voted to keep the policy repo rate unchanged. As such, the standing deposit facility rate (SDF) stays at 6.25 percent, while the marginal standing facility (MSF) rate and the bank rate stay at 6.75 percent.
The Reserve Bank of India Governor Shaktikanta Das said the MPC also maintained its withdrawal of accommodation stance for inflation to align, and support growth. He highlighted that they moderated the growth projection for Q1 of the current year, but GDP growth for Q2 is expected to be 7.2 percent, 7.3 percent for Q3, and 7.2 percent for Q4.
The RBI highlighted concerns about food inflation, which contributed to over 75 percent of headline inflation in May and June. Das said the high food price momentum continued in July, but favorable base effects may push headline inflation down. The governor asserted that the monsoon and progress in sowing could offer some relief shortly.
Retail Customers Prefer Alternative Investment – RBI
Das raised concerns about the channeling of retail money into alternative investment routes. He said banks are facing difficulties on the funding front, and are looking at short-term non-retail deposits to meet the incremental credit demand.
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The RBI warned that this could expose the banking system to structural liquidity issues. Das believes banks should turn their focus on the mobilization of household financial savings through innovative products and service offerings, and look at their brand network.
Das had highlighted at a recent event that households increasingly prefer capital markets over traditional banks for investment or saving. He said households are pushing their savings into Mutual Funds, Insurance Funds, and Pension Funds.
