Reserve Bank of India Governor Shaktikanta Das has kept the interest rate free for the second consecutive time in the RBI's monetary policy meeting on Thursday. The members of the RBI MPC unanimously decided to keep the repo repo at 6.50 per cent. The important reason for this is that banks have a huge amount of liquidity to meet the loan demand in the near future. The RBI governor reiterated that the RBI MPC took the decision to maintain the status quo as the money supply has grown by 10.10 per cent and non-food bank loans have grown by 15.6 per cent during this period.
Talking about the surplus money in the banking system, RBI Governor Shaktikanta Das said that the average amount of money going into banks in February-March was Rs 1.4 lakh crore, which increased to Rs 1.7 lakh crore in April-May. Money supply increased by 10.1 percent and non-food bank loans by 15.6 percent on May 19, 2023. At the same time, India's foreign exchange reserves stood at $ 595.1 billion on June 2, 2023.
However, experts believe that after the withdrawal of Rs 2000 notes, surplus liquidity has come into the banking and Indian economy. However, he said that India's better-than-expected GDP, strong GST collection, along with coming down of inflation, have helped the RBI to freeze the policy rate.
Effect of 2000 rupee note decision
Speaking to Live Mint, Sujan Hazra, Chief Economist and Executive Director, Anand Rathi, said that the decision to withdraw 2000 notes was attributed to the RBI policy freeze again. He said that a pause in the RBI monetary policy rate was expected today. The MPC has decided to maintain the current stance by majority. This was possible because the demonetization of Rs 2,000 notes has recently contributed significantly in increasing the liquidity.
RBI's policy stance
He further said that RBI's projections indicate that the RBI's inflation target of 4 per cent may be exceeded in each month of the current financial year. While the continuation of RBI's policy stance is somewhat pessimistic, the central bank's caution seems justified due to rising risks such as the possible impact of El Nino on India's monsoon and continued hike in interest rates by the world's major central banks. He said that we estimate that the effect of the announcement of monetary policy will not be seen in the financial market.
Bank will have to reduce liquidity
Sandeep Bagla, CEO, Trust Mutual Fund, on why it has decided to maintain status quo on interest rates despite surplus liquidity after withdrawing Rs 2000 notes, says it is a pause and the next rate cut will be an increase Will be more than Growth is built in flexibility. Inflation is coming down, but it may see an increase in the future as the labor market remains a constant threat. Australia and Canada have increased rates after a pause. We are not out of this jungle yet. He said that the liquidity surplus has to be reduced because Rs 2000 notes are continuously increasing the liquidity in the banks.
That's why inflation has come down
On the broad factors that helped RBI maintain status quo on interest rates, Anu Agarwal, president and head of corporate banking at Kotak Mahindra Bank, said no change in policy rates was expected as inflation numbers were showing a low. And there was an atmosphere of fall in the prices of crude oil. Global macro economy is bringing business down and this decision of RBI will help in growth along with domestic demand. He further added that interest rate stability will give a boost to capex plans, most of which have been undertaken by the government so far. Investment expenditure has more impact than consumption expenditure.
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