RBI Bulletin: August 2024 Analysis and Key Data Pointers

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RBI releases its bulletin detailing its views, important statistics, state of the economy, and other key insights.

Here’s a breakdown of its key policy.

1. Monetary Policy Statement (August 6-8, 2024):

  • Policy Decisions:

    • The MPC decided to keep the policy repo rate unchanged at 6.50%, marking a steady approach amidst inflation concerns.
    • The decision to maintain rates was made by a majority of 4 out of 6 members, indicating some internal debate about the need for rate changes.
    • The stance of “withdrawal of accommodation” continues, focusing on aligning inflation to the target while supporting growth.

  • Inflation Analysis:

    • Headline inflation increased to 5.1% in June 2024, up from 4.8% in April-May 2024, primarily due to stubbornly high food prices.
    • Food inflation reached 8.4% in June, driven by sharp increases in prices of vegetables, cereals, milk, fruits, and edible oils.
    • Core inflation (excluding food and fuel) moderated to 3.1% in May-June, its lowest level in the current CPI series.
    • Fuel prices continued to remain in deflation, reflecting the impact of significant cuts in LPG prices in August 2023 and March 2024.

  • Growth Projections:

    • Real GDP growth for 2024-25 is projected at 7.2%. Quarterly projections include:
      • Q1: 7.1%
      • Q2: 7.2%
      • Q3: 7.3%
      • Q4: 7.2%
    • The domestic economy shows resilience with strong urban consumption and improving rural demand, aided by steady investment demand.

2. Economic Conditions:

  • Global Context:

    • Global growth shows uneven expansion, with manufacturing slowing down but services maintaining strength.
    • Inflation in major economies is receding slowly, though services price inflation remains sticky.
    • Central banks worldwide are showing divergent policy paths, with some moving towards easing and others tightening.

  • Domestic Economic Activity:

    • Steady progress in the southwest monsoon and higher cumulative kharif sowing are positive for agricultural output.
    • Manufacturing activity is supported by strong domestic demand, with the Purchasing Managers’ Index (PMI) for manufacturing at 58.1 in July.
    • The services sector continues to expand robustly, with the PMI for services at 60.3 in July, marking seven consecutive months above 60.

  • Sectoral Insights:

    • Manufacturing: Gains strength from rising domestic demand; IIP growth accelerated in May 2024.
    • Agriculture: Benefitting from good monsoon and high reservoir levels, which are expected to support rural consumption.
    • Services: Maintains buoyancy with strong indicators like high PMI and increased GST revenues.

3. Inflation Details:

  • Food Inflation:

    • Dominates the CPI basket, accounting for over 75% of headline inflation in May and June.
    • Sharp price increases in tomatoes (48.7% month-on-month in June), onions (24.2%), and potatoes (12.2%) drove significant contributions to overall inflation.
    • Inflation pressures were also seen across cereals, pulses, milk, and prepared meals, reflecting broader challenges in controlling food prices.

  • Core Inflation:

    • Softening was broad-based, with core services inflation also reaching historic lows.
    • Core inflation for goods was at 3.5% in June, and for services, it was at 2.7%.

4. Regulatory and Developmental Measures:

  • Public Repository of Digital Lending Apps:

    • To counter unauthorized lending apps, the RBI will create a public repository listing digital lending apps associated with regulated entities. This will help consumers verify the legitimacy of these apps.

  • Credit Reporting Frequency:

    • Credit information reporting will move from monthly to fortnightly intervals, allowing for more timely updates on borrowers’ credit status. This change aims to enhance risk assessment capabilities for lenders and provide more accurate credit information for borrowers.

  • UPI Transaction Limit for Tax Payments:

    • The UPI transaction limit for tax payments will be increased from ₹1 lakh to ₹5 lakh per transaction, facilitating easier and higher-value payments through the UPI system.

5. Financial Stability and Liquidity Management:

  • Liquidity Conditions:

    • System liquidity transitioned from a deficit in June to a surplus in July. The RBI conducted variable rate repo and reverse repo operations to manage liquidity, ensuring the inter-bank overnight rate stayed close to the policy repo rate.

  • External Sector and Forex Reserves:

    • India’s current account deficit (CAD) moderated to 0.7% of GDP in 2023-24, down from 2.0% in 2022-23, supported by a lower trade deficit and robust services and remittances receipts.
    • Foreign exchange reserves reached a historical high of US$675 billion as of August 2, 2024, highlighting the resilience of India’s external sector.

6. Additional Measures:

  • Enhancing Cheque Clearing Efficiency:
    • The RBI proposes transitioning to a continuous clearing with ‘on-realization-settlement’ in the Cheque Truncation System (CTS), reducing the cheque-clearing cycle to a few hours on the presentation day.

This detailed summary highlights the critical aspects of the RBI’s August 2024 Bulletin, offering a comprehensive understanding of India’s monetary policy, economic conditions, and regulatory environment.

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