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He stated that recent high-frequency indicators suggest some improvement in global economic activity, while the outlook is now tempered by additional downside risks from financial stability concerns.
These developments have led to heightened volatility in global financial markets as reflected in sizeable two-way movements in bond yields, fall in equity markets, and the US dollar shedding its gains from its peak of September 2022.
Despite this volatility, the banking and non-banking financial service sectors in India remain healthy, and financial markets have evolved in an orderly manner.
The Governor noted that economic activity remains resilient, and real GDP growth is expected to have been 7.0 per cent in 2022-23. Consumer price inflation, however, has increased since December 2022, driven by price pressures in cereals, milk, and fruits, with core inflation remaining elevated.
Looking ahead, headline inflation is projected to moderate in 2023-24. The monetary policy actions taken since May 2022 were still working through the system, so the MPC decided to keep the policy rate unchanged to assess the progress made so far while closely monitoring the evolving inflation outlook. The Governor stated that the MPC would not hesitate to take further action as required in its future meetings.
To recap the actions taken so far, the RBI has increased the policy repo rate cumulatively by 250 bps in the last 11 months starting May 2022. It is now necessary to evaluate the cumulative impact of these rate hikes. Under these circumstances, the Governor stated that the bank must be extremely prudent in its actions, adopting a calibrated and balanced approach and remaining watchful.