RBI MPC Decision Today: These Are The Challenges RBI Governor Has To Deal With

Even as the 3-day RBI MPC meeting is going on from April 3 and the rate hike decision will be decided on Thursday, April 6. The rate hike decision comes at a time when the global banks are facing tough times, apart from economic uncertainty. Here are the challenges before RBI Governor Shaktikanta Das:

Inflation Beyond RBI Target

The RBI is mandated to limit CPI inflation in the range of 2-6 per cent. However, according to the latest data available, India’s CPI inflation in February 2023 stood at 6.44 per cent, which is beyond the RBI’s tolerance limit of 6 per cent for the second consecutive month. The retail inflation had stood at 6.52 per cent in January 2023.

Economic Uncertainty

The World Bank on Tuesday revised downwards its FY2023-24 GDP forecast to 6.3 per cent, from 6.6 per cent forecast in December 2022. “Growth is expected to be constrained by slower consumption growth and challenging external conditions. Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures,” it said.

Apart from this, unseasonal rains and hailstorms in many parts of India recently damaged crops.

Global Banking Woes

Three banks in the US, Silicon Valley Bank, Silvergate Bank and Signature Bank, collapsed last month; While Swiss lender Credit Suisse and US-based First Republic Bank also struggled and sought support to survive.

In order to manage the crisis, Credit Suisse Group AG said it will borrow up to $54 billion from the Swiss National Bank, to strengthen its liquidity. However, the plan failed reassure investors and the bank’s customers. The Swiss authorities then urged UBS to take over its smaller rival.

Peer Pressure

Major global central banks, including the US Federal Reserve and the European Central Bank, recently hiked their interest rates. In order for the RBI to keep pace with the global interest rates, the RBI has the pressure to raise the rate.

The Oil Price Movements

Following the decision of the OPEC and its allies to cut production, the crude oil prices have starting picking up. It has increased to around $85 per barrel. This is important for India as the country imports around 80 per cent of its crude oil requirements.

The RBI has been continuously increasing the key repo rate in order to control inflation in the country. It has raised the repo rate six times by 250 basis points in total since May 2022 in order to control inflation. In the last MPC meet in February, the RBI raised the key repo rate by 25 basis points to 6.50 per cent.

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