Issue: 5 In-house magazine of FCFP members May — June 2023

Fall of
Silicon
Valley
Bank
1
INGENIOUS May-Jun 2023

Dear Readers,

We are pleased to present our 5th bi-monthly “Ingenious Magazine” for May & June 2023 by the
alumni of Foundation Course in Financial Planning (FCFP) 2022 1st Batch from Go-past Centre
for Learning Pvt. Ltd., under the able guidance of our Guru Shri Gopinath Radhakrishnan Sir.
It comprises of write ups on financial products and latest news articles related to economy, finance and insur-
ance industry based on our research.

Here are the links for our previous magazines:

https://www.slideshare.net/AnkurShah26/ingenious-sept-2022pdf
https://www.slideshare.net/AnkurShah26/ingenious-nov-dec-2022pdf
https://www.slideshare.net/AnkurShah26/ingenious-janfeb-2023pdf
https://www.slideshare.net/AnkurShah26/ingenious-marapr-2023pdf

We are thankful, grateful and blessed for your support till date and wish the same support from you all ahead
too.

Wish you a happy reading.

Thanking you & Regards,

Savita Pillai
Secretary
On behalf of the Organizing Committee
Alumni FCFP

Content Page
The Progression - All for the sake of our FAMILY (Part 1) 3
Know your AWF Qualifiers 6
Did you know? 7
Data Centre 8
Cover Story - Collapse of Silicon Valley Bank 9
Ar cle - FAMILY—a Mutual Enterprise 10
RBI MPC Meet 13

Magazine designed and compiled by:

BINDRA Inderpal Singh

2
INGENIOUS
All for the sake for our FAMILY
“The family should be estab-
lished and run on a sound business
basis. It should be protected against
needless bankruptcy”.
- PROF SOLOMON. S. HUEBNER
Business and Family are like
the two eyes to any businessmen.
But the amount of prudence he exer-
cises in managing the finance of his
business right from the accoun ng
process, budge ng, using scien fic
tools to arrive at conclusions are not
done in respect of the finance the
family needs. But internally men feel
that it is the family for which he is
working hard so much in his busi-
ness.
He has a team of experts like
CAs, CFOs and Analysts to support
him to well manage the financial as-
pects of his business, on his personal
and family side it is the financial
planner who does all these roles
bundled into one, the Financial Plan-
ner.
In working with persons from
various professions, holding various
posi ons, for the last almost 4 dec-
ades, I have understood how crucial
is the role of financial planners for
them and their families. I have many
me been surprised to understand
the financial acumen of such individ-
uals when it comes to their business-
es, but haven’t used that to take
care of their families. Some mes the
apathy was very obvious. One of our
client when we met him first me
about 30 years before admired him
for his extremely sound financial
management knowledge and also his
financial discipline in running his
business. But astonishingly his family
… the
Progression
R. Gopinath
finances were in a mess. There were
many investments he had bought for
his family but did not con nue them
to complete its term. He was in a
grave debt posi on. Even some of
his cheques given to some service
providers including banks have
bounced, for many reasons. The
family doesn’t know about their pre-
sent delicate financial posi on.
I have also come across peo-
ple who have established good pro-
cesses in their families for ma ers
related to finance of the family. But
such people are very rare.
This ar cle is the first part of
the serial under the above name. We
will be discussing the primary as-
pects to be taken care of by the head
of the family (the one who has the
responsibility of providing to all the
family members; as the topic pro-
ceeds:
1. draw the personal balance
sheet of some of our clients,
2. work out 5 important ra os
related to financial welfare of
the family, and
3. drawing a plan for him and his
family
வரப் ர நீ ர் உய ம்
நீ ர் உயர ெநல் உய ம்
ெநல் உயரக் உய ம்
உயரக் ேகால் உய ம்
ேகால் உயரக் ேகான் உயர்வான்
This poem was wri en by a great
Tamil Poet Avaiyar almost 1000
years.
As the bunds of the canal rise;
levels of water that it contains rise;
consequently the quantum of paddy
(rice) will increase, This abundance
will rise the prosperity of the ci zens
May-Jun 2023
(Part 1)
as the prosperity of the ci zens
grow, then the fair and just prac ces
will grow and this will result in the
growth of the King (ruler). This is to
show the connec on between the
family welfare and the state welfare,
outlining the duty of the king to en-
sure the welfare of his peasants and
ci zens.
Arthashasthra wri en by
Chanakya is a financial trea se. This
provided guidance of good govern-
ance to the King and his ministry. In
many places it refers to the link be-
tween the family welfare and the
state welfare.
Thirukkural consis ng 133
chapters with 10 couplets of poems
(Kurals) for each chapter, dwelling
upon every single aspect of human
life ranging from Spirituality to Sci-
ence, from Economics to psychology,
from humanity to governance, also
enshrines the connec on between
Family welfare and the state welfare
in many of its Kurals.
Just like the state’s economy
runs on the income generated by
way of taxes, levies and dividends,
and businesses run on the income
generated by way of its sales and
services, a family is run by the in-
come generated by the earners for
the family, mostly the father and in
many cases mother also. There can
be other sources of income to the
family, but in most of the cases occu-
pa onal income is the biggest source
(if not the only source).
Contd...
3
INGENIOUS May-Jun 2023

… the
Progression

R. Gopinath

Contd... Stakeholders o en collect nesses. The ra o will indicate the

Look at the table below that informa on on these elements to liquidity available in the company. If
shows the differences in the ap- protect their interests properly. this ra o is less than the desired
proaches and the objec ves of There are three major ways of ana- level, then the company can be un-
managing businesses and families. lysing the informa on received der huge distress because they may
have to default on their borrowings.
BUSINESS FAMILY The current ra o compares all of a
Vola lity Constancy company’s current assets to its cur-
Risk is Shared Risk is concentrated rent liabili es. These are usually
Income from a range of Products/ Single or Double Income from Occu- defined as assets that are cash or
Services pa on will be turned into cash in a year or
Maximising ROI Maximising HAPPINESS less and liabili es that will be paid
in a year or less.
Leveraging Credit Elimina ng credit
A good current ra o is in be-
Can be sold out if desired Binding Rela onships tween 1.2 to 2, which means that
Resize/ Downsize to manage cost Share the burden the business has 2 mes more cur-
External Interference Autonomy rent assets than liabili es to covers
Trained Team Innocent Team its debts. A current ra o below 1
means that the company doesn't
Contracts Conven ons
have enough liquid assets to cover
Governed by Law Governed by Law its short-term liabili es. (While this
There are 5 elements that from the company. Even to buy is the general rule, we need to see
managers of businesses are con- stocks of that company, generally the history of that company and
cerned with 1) Income, 2) Expenses, investors study these: also its compara ve standing in that
3) Liabili es, 4) Assets and 5) Cash 1) Trends 2) Comparisons and 3) industry).
flow. (From this point I will be using Ra os. For example: Current ra o There can be such ra os ar-
the word company to denote busi- and quick ra o is considered as an rived for Families also so that they
nesses). important governing tool for busi- can avoid distress situa ons or de-
CATEGORY COMPANY FAMILY faul ng on their repayment sched-
ule of their borrowings.
Sales Occupa onal
Income One more example of good
Investments Investments governance by analysing the ra os
Opera ng On-going involved is DTI that is the percent-
Expenses Marke ng Major Responsibili es age of a person’s gross monthly in-
Capital Financial come that goes to paying his
Overdra / Cash Cred- monthly debt payments. This ra o
Credit Cards is used both for Businesses and for
its
Credit purchases Short term borrowings families as well.
Liabili es This ra o will decide his and
Long-term Debts Mortgage Loans
his family’s future welfare. This will
Major Responsibili es to be pro- indicate to the financial planner
vided for how urgently we need to restruc-
Current assets Financial assets ture the family’s debt exposure.
Assets
Fixed assets Personal assets Look at the following examples:
Financial plan to provide for cash
Cash-flow Fund flow statements Contd...
to meet the needs
4
INGENIOUS May-Jun 2023

… the
Progression

R. Gopinath

Contd… league of Mr Shankar is earning

Mr Shankar has a gross monthly 1,50,000 monthly like his friend.
income of 1,50,000. His monthly com- Accordingly the DTI ra o of Mr.
mitments towards the debt he has
availed is like this CATEGORY AMOUNT
Housing Loan 50,000
CATEGORY AMOUNT Car Loan 16,000
Housing Loan 25,000
Society Loan ( Employ-
Car Loan 8,000 14000
ees)
Society Loan ( Employ- Credit Card 10,000
12,000
ees)
TOTAL 90,000 to his way of using debts to finance
Credit Card 5,000 his family’s needs (Wants).
TOTAL 50,000 Bhaskar is: 90000/150000= 60% This
shows that Mr Shankar can design
Accordingly the DTI ra o of Mr his future financial wellness. Where- TO BE CONTINUED
Shankar is: 50000/150000= 33.33% as Mr Bhaskar need to be sensi ve
Mr Bhaskar who is the col-

“
Our mind is capable of self-curing, self
-correcting and self renewing at our
command. To command the mind so,
is possible only if we believe in its
capacity
- rg

5
INGENIOUS May-Jun 2023

Mr. Ankur SHAH Ms. Bharathi SRINIVASAN Mr. Ajay Kumar TYAGI
AWF — 28-Aug-2022 AWF — 29-Sep-2022 AWF — 30-Sep-2022

Mr. Ashok G SUTTAR Mr. Keshav H AGARWALLA

AWF — 30-Sep-2022 AWF — 07-Oct-2022

Mr. Suresh Kumar ARORA Mr. Amit Uttam SARANG Mr. Umesh PANCHWAG
AWF — 09-Oct-2022 AWF — 29-Oct-2022 AWF — 17-Nov-2022

Mr. Inderpal S. BINDRA Ms. Savita PILLAI Mr. Nishith JOSHI

AWF — 30-Nov-2022 AWF — 27-Jan-2023 AWF — 18-Feb-2023

6
INGENIOUS May-Jun 2023

Liability insurance is a part of the general insurance system of risk financing to protect the pur-
chaser from the risks of liabili es imposed by lawsuits and similar claims and protects the in-
sured if the purchaser is sued for claims that come within the coverage of the insurance policy.
Some major types of Liability Insurances available in India are:
Þ Public Liability (Industrial & Non Industrial)
Þ Product Liability & Recall Insurance
Þ Commercial General Liability
Þ Directors & Officers Liability
Þ Professional Liability
Þ Employers Liability
Þ Service Contract Liability

Inderpal Singh Bindra

Passion in any field, draws all the

necessary resources from this universe
to equip you and evolve you into a
titan of that field
-rg

7
INGENIOUS May-Jun 2023

D a t a C e n t re
Latest Policy Rates (Source RBI website) as at 01:30 pm on 12-May-2023
Policy Rates Reserve Ra os Exchange Rates Lending / Deposit Rates
8.75% -
Policy Repo Rate 6.50% CRR 4.50 % INR / 1 USD 82.16 Base Rate
10.10%
Standing Deposit Facility 7.90% -
6.25% SLR 18.00 % INR / 1 GBP 102.94 MCLR (Overnight)
Rate 8.50%
Marginal Standing Facili- 2.70% -
6.75% INR / 1 EUR 89.82 Savings Deposit Rate
ty Rate 3.00%
INR / 100 Term Deposit Rate > 1 6.00% -
Bank Rate 6.75% 60.98
JPY Year 7.25%
Fixed Reverse Repo Rate 3.35%

Money Market 12-May-2023 GDP (US$ million) by country

Call Rates * IMF
* as on previous day Sr. No. Country/Territory UN Region
Es mate Year
Government Securi es Market World — 10,55,68,776 2023
7.26% GS 2033 7.0230% # 1 United States Americas 26,854,599 2023
7.26% GS 2032 7.0744% # 2 China Asia 19,373,586 2023
7.06% GS 2028 6.9715% # 3 Japan Asia 4,409,738 2023
7.38% GS 2027 6.9761% # 4 Germany Europe 4,308,854 2023
6.89% GS 2025 6.8977% # 5 India Asia 3,726,882 2023
6.69% GS 2024 6.9140% # 6 United Kingdom Europe 3,158,938 2023
91 day T-bills 6.9482%* 7 France Europe 2,923,489 2023
182 day T-bills 7.0292%* 8 Italy Europe 2,169,745 2023
364 day T-bills 7.3182%* 9 Canada Americas 2,089,672 2023
* cut-off at the last auc on 10 Brazil Americas 2,081,235 2023
#
as on end of previous working day 11 Russia Europe 2,062,649 2023
Capital Market 12 South Korea Asia 1,721,909 2023
S&P BSE Sensex 61904.52 * 13 Australia Oceania 1,707,548 2023
Ni y 50 18297.00 * 14 Mexico Americas 1,663,164 2023
* as on previous day 15 Spain Europe 1,492,432 2023
Latest Small Savings Schemes Rates
01-Apr-2023 to 30-Jun-2023 4.40% Gross Domes c Product
2022-23

Instrument Rates %
Compounding GDP Dec 22
Frequency

Savings Deposit 4.00 Annually

1.10% Index of Industrial
Produc on
1 Year Time Deposit 6.80 Quarterly
2 Year Time Deposit 6.90 Quarterly
IIP Mar-23

3 Year Time Deposit 7.00 Quarterly

5 Year Time Deposit 7.50 Quarterly
4.27% Consumer Price Index
Apr-23
5 Year Recurring Deposit 6.20 Quarterly CPI
Senior Ci zen Savings Scheme 8.20 Quarterly & paid Source MOSPI (Government of India Ministry of
Sta s cs And Programme Implanta on)
Monthly Income Account 7.40 Monthly & paid
Na onal Savings Cer ficate 7.70 Annually US Fed Rate 5.00% to 5.25% (as on 03-May-2023, Fed meet)
Public Provident Fund 7.10 Annually
Kisan Vikas Patra 10 Year US Bond yield 3.46% (as on 12-May-2023)
7.50 Annually
(Matures in 115 months)
Sukanya Samriddhi 8.00 Annually US CPI 4.90% (as on Apr-23)

8
INGENIOUS May-Jun 2023

C S Ankur SHAH

B
Macaulay DURATION
efore going through Silicon Valley Bank MODIFIED DURATION
Collapse reasons lets understand some Mod. Dur. = Mac Dura-
necessary technical things like Systemic on / (1+Yield to Ma-
Risk, Systema c Risk, Macaulay Dura on, Modified turity)
Dura on. How does Macaulay dura on and modified Mod. Dur. = 4.6251/
dura on affect bonds with change in interest rates. (1+0.045) = 4.4359
Dodd Frank Act. Yield changed by 1%
that is 0.01
Systemic Risk is the risk of collapse of an en re
Price Change = -
financial system or en re financial market, as opposed
1*Modified Dura on * Yield Change
to risk associated with any one individual en ty, group
Price Change = -1*4.43*0.01
or component of a system, that can be contained
Price Change = -0.0443
therein without harming the en re system.
Means Bond Price decreased by 4.43%
Systema c Risk some mes plainly called mar- Now imagine price change if rate of interest increased
ket risk; systema c risk is the risk inherent in the ag- by 4%
gregate market that cannot be solved by diversifica- Price Change = -1*4.43.0.04
on. Some common sources of market risk are reces- Price Change = -0.1772
sions, wars, interest rates and others that cannot be Means Bond Price decreased by 18%
avoided through a diversified por olio. Though sys- In last 1 year we saw increase of around 4.5%
tema c risk cannot be fixed with diversifica on, it can interest rate in USA to control the infla on. Imagine
be hedged. the change in long term bond price. See the below
chart of change in fed rate. Disclaimer The chart is tak-
Macaulay Dura on is the length of me taken en from trading economics website.
by the investor to recover his invested money in the BOND AND INTEREST RATE RELATIONSHIPS
bond through coupons and principal repayment.
EXAMPLE FOR MACAULAY DURATION
FACE VALUE: 1000
COUPON: 4% PAYABLE ANNUALLY
MARKET RATE OF INTEREST: 4.5%
WHAT WILL BE THE EFFECT OF THE INCREASE OF
MARKET RATE OF INTEREST TO 5.5%

Time · Bond prices are inversely related to the changes

Coupon Weighte in the market interest rates
Ye PV @ Weight =
Annual d Avg.
ar 4.5% PV/Price · Long term bonds are more sensi ve the interest
Payment = Weight
rate changes than short term bonds
* Years
· Low-coupon rate bonds are more sensi ve to
1 40 -38.28 0.0391 0.0391 the interest rate changes that high-coupon rate
2 40 -36.63 0.0375 0.0749 bond

3 40 -35.05 0.0358 0.1075 Dodd Frank Act A er 2007–08 financial crisis

Dodd Frank Act was passed in 2010. An Act to promote
4 40 -33.54 0.0343 0.1372 the financial stability of the United States by improving
5 1040 -834.55 0.8533 4.2664 accountability and transparency in the financial sys-
Weight -978.05 4.6251 tem, to end "too big to fail", to protect the American
taxpayer by ending bailouts, to protect consumers
Macaulay Dura on 4.6251 Contd...

9
INGENIOUS
C
Contd…
S Ankur SHAH
from abusive financial services prac ces, and for other
purposes.
Dodd-Frank required that banks with at least
$50bn in assets – banks considered “systemically im-
portant” – undergo an annual Federal Reserve “stress
test” and maintain certain levels of capital as well as
plans for a living will if they failed.
SVB’s chief execu ve, Greg Becker, argued before Con-
gress in 2015 that the $50bn threshold (SVB held
$40bn at the me) was unnecessary and his bank, like
other “mid-sized” or regional banks, “does not present
systemic risks”.
In 2018, Congress passed a new law that rolled
back some of Dodd-Frank’s restric ons. Including in-
creasing to $250bn the threshold at which banks re-
ceive enhanced supervision – again, based on the argu-
ment that smaller banks would never prove “too big to
fail”
Some measures are conserva ve but they are
needed. Some measures are popular measures. (For
example, In India minimum capital required to start
an insurance company is Rs 100 crore. One of the
popular demands is to lower that capital requirement
that will allow new small players to start an insurance
company and in turn will promote growth. But the
cost of popular measure in long term may be danger-
ous.)
LOSSES The bank's deposits increased from $62
billion in March 2020 to $124 billion in March 2021,
benefi ng from the impact of the COVID-19 pandemic
on science and technology. Most of these deposits
were invested in long-term Treasury bonds as the bank
sought a higher return on investment than was availa-
ble on shorter-term bonds. These long-term bonds fell
in current market value as interest rates rose during
the 2021–2023 infla on surge and they became less
a rac ve as investments rela ve to newer bond is-
sues. In April 2022, SVB's chief risk officer stepped
down, and a successor was not named un l January
2023—a period coinciding with the period of interest
rate increases.
At the end of 2022, the bank had a $117 billion
bond por olio, divided into a $91.3 billion held-to-
maturity por olio (meaning it was not marked to mar-
ket and profits or losses would not be realized un l
maturity) and a $26 billion available-for-sale por olio
(which as the name implies was marked to market). At
that point in me, its marked-to-market unrealized
losses for securi es held to maturity exceeded $15 bil-
lion. The bank did not hedge against interest rate risk
May-Jun 2023
on that part of its bond por olio, apparently for the
same reason that most banks do not: the hedge itself
would bounce around with the market, while the point
of holding bonds to maturity is to hold them at par.
Most banks minimize interest rate risk in their held-to-
maturity por olios by buying shorter-term bonds. The
bank did hedge against interest rate risk on its availa-
ble-for-sale por olio by building up a por olio of $15.2
billion of interest rate swaps by the end of 2021.
At the same me, startup companies withdrew
deposits from the bank to fund their opera ons as pri-
vate financing became harder to come by. A series of
layoffs in the technology sector that began in 2022 also
caused depositors to draw down their savings. During
the first half of 2022, the bank realized $517 million in
gains by unwinding $11 billion of its interest rate swaps
on its available-for-sale bond por olio. By the end of
the year, it had only $563 million in swaps protec ng
that por olio. In early 2023, to raise needed cash to
fund withdrawals, the bank sold all of its available-for-
sale securi es, realizing a $1.8 billion loss. The bank
was cri cized for ming its announcement shortly a er
Silvergate Bank, which catered to cryptocurrency us-
ers, started winding down its opera ons, and for not
lining up private funding ahead of the announcement.
SUMMARY
· Systemic Risk & Systema c Risk
· Roll back of Dodd Frank Measures. Lesser strin-
gent and popular measures
· Vacant post of chief risk officer from April 2022
to January 2023
· Inves ng larger part of deposits in long term
bonds rather that short term bonds
· Not hedging against increase in interest rates
and underes ma ng the demand for cash
· Aggressive rate hikes by feds to control infla on
meaning if people withdraw money, then long
term bonds will be sold at loss.
· Mass withdrawal of deposits.
Ankur SHAH
Author
Source : Tradingeconomics, wikipidea, moneycontrol, mint
10
INGENIOUS
A MUTUAL ENTERPRISE
Savita PILLAI
F
Mumbai
AMILY
The word “family”; in itself is
one’s whole world which is com-
plete in it’s true sense. When we
ask how you would define a family?
we get numerous defini ons for the
same. But, today as a financial advi-
sor; I would like to take you all to a
unique level of percep on when it
comes to the word “FAMILY” based
on the teachings of my Guru Shri
Gopinath Radhakrishna Sir Ji.
“FAMILY IS A MUTUAL
ENTERPRISE.”
As you all have heard about
private and public limited compa-
nies, partnership and proprietary
firms; a family depends on mutuali-
ty, that is depending on each other.
Each family member plays an im-
portant and dis nc ve role for the
smooth func oning of a family. It
depends mainly on four mutual fac-
tors; mutual love, mutual respect,
mutual resources and interdepend-
ent. Coming to each factor, let me
start with the first one.
MUTUAL LOVE
Mutual love is where love,
care, affec on, trust resides among
all the family members equally.
There is a feeling of being secured
and loved uncondi onally amongst
every member of the family. If any
one member of a family is sad or
upset for any reason, then all the
other members try their best to
bring back happiness in that mem-
ber. Thus, every member tries that
there is peace and harmony in the
family. They celebrate all fes vals
and special days together, exhib-
i ng unity among them.
MUTUAL RESPECT
This means giving respect to
each other equally in a family. It
also shows values of life prac ced
by all the family members from
small kids to the older genera on.
Understanding and suppor ng each
May-Jun 2023
other equally and uncondi onally is
also followed by everyone.
MUTUAL RESOURCES
Here I would like to say that
whatever sources of facili es are
available in a home are commonly
used by all. Say for example, all
watch the same television in the
living room. Then food which is be-
ing cooked for all the family mem-
bers is common for everyone; etc.
INTERDEPENDENT
I would men on that ul -
mately because of all these reasons
men oned above all family mem-
bers are interdependent on each
other. I would further like to explain
this by giving an example that, as a
father works and strives to fulfil all
the monetary needs of the family
members, a mother takes care of all
the household needs and nowadays
in some cases, mothers also support
the monetary needs of the family.
Coming to grandparents they play
an important role in the upbringing
of the grandchildren by taking care
of them and imbibing good values.
Contd...
11
INGENIOUS
Contd…
Thus, you all can see these
are the four reasons why we call
“FAMILY A MUTUAL ENTERPRISE”.
Happiness
Good Health
Furthermore, I would like to
say a family depends on FOUR
PILLARS to stand strong and repre-
sent itself in a society. Now, let us
have a look what these four pillars
are:
1. HAPPINESS
It is important that happiness
prevails in one’s family and all are
living happily with each other.
Some mes there can be minor
fights and misunderstandings; but it
is fine if it is resolved and taken care
off immediately for everyone’s
peace.
2. GOOD HEALTH
Good and sound health of all
the family members is also especial-
ly important as a healthy family can
stand strong always.
3. RESPECT(FUL)
Every family member should
respect each other and in the same
way they should respect the society
at large. This helps them in ge ng
May-Jun 2023
respect wherever they go. levels of scien fic tests and calcula-
ons usually done by financial advi-
Up ll now, I have men oned
sors or financial planners. A few
about three pillars which was most-
tests among them are named as
ly related to the family members in
below:
1. Human Life Value Calcula-
ons
2. Capital Need Analysis
3. Net Worth Analysis
To conclude this write up, I
would like to men on a couplet
wri en by the great Saint Thiru-
valluvar.
Respec ul ற 1030:
இ க கா ெகா றிட வ அ
ந லா இலாத
Adequate Money
respect to their happiness, good
health and their respec ulness in
society. So, what about the 4th pil-
“If there is no support
lar? As the three pillars the 4th pillar
also plays an important role in hold- made ready to prop up and
ing the family firmly. The 4th pillar is maintain a family
ADEQUATE MONEY. (in distress), at the first
4. ADEQUATE MONEY stroke of misfortune it will
Adequate money in rela on instantly fall as if an axe cut
to a family means the financial ca- the growing tree.”
pability of a family to meet all the
needs regular or on emergency. So,
what do we do about this pillar? If
this pillar is strong enough then the
previous three pillars will automa - Savita PILLAI
cally be strong. But if this pillar is Author
weak then there are chances that
the other three pillars might also be
weak or get imbalanced in absence
of adequate money.
CONCLUSION
How do we know if the 4th
pillar of adequate money is strong
or not?
To know this; I shall recom-
mend some primary and secondary
12
 �ेस �काशनी PRESS RELEASE

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RESERVE BANK OF INDIA
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April 20, 2023

Minutes of the Monetary Policy Committee Meeting, April 3, 5 and 6, 2023

[Under Section 45ZL of the Reserve Bank of India Act, 1934]

The forty second meeting of the Monetary Policy Committee (MPC), constituted under
Section 45ZB of the Reserve Bank of India Act, 1934, was held during April 3, 5 and 6,
2023.

2. The meeting was attended by all the members – Dr. Shashanka Bhide, Honorary
Senior Advisor, National Council of Applied Economic Research, Delhi; Dr. Ashima
Goyal, Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai;
Prof. Jayanth R. Varma, Professor, Indian Institute of Management, Ahmedabad; Dr.
Rajiv Ranjan, Executive Director (the officer of the Reserve Bank nominated by the
Central Board under Section 45ZB(2)(c) of the Reserve Bank of India Act, 1934); Dr.
Michael Debabrata Patra, Deputy Governor in charge of monetary policy – and was
chaired by Shri Shaktikanta Das, Governor.

3. According to Section 45ZL of the Reserve Bank of India Act, 1934, the Reserve
Bank shall publish, on the fourteenth day after every meeting of the Monetary Policy
Committee, the minutes of the proceedings of the meeting which shall include the
following, namely:

(a) the resolution adopted at the meeting of the Monetary Policy Committee;
(b) the vote of each member of the Monetary Policy Committee, ascribed to such
member, on the resolution adopted in the said meeting; and
(c) the statement of each member of the Monetary Policy Committee under sub-
section (11) of section 45ZI on the resolution adopted in the said meeting.

4. The MPC reviewed the surveys conducted by the Reserve Bank to gauge
consumer confidence, households’ inflation expectations, corporate sector performance,
credit conditions, the outlook for the industrial, services and infrastructure sectors, and
the projections of professional forecasters. The MPC also reviewed in detail the staff’s
macroeconomic projections, and alternative scenarios around various risks to the
outlook. Drawing on the above and after extensive discussions on the stance of monetary
policy, the MPC adopted the resolution that is set out below.

Resolution

5. On the basis of an assessment of the current and evolving macroeconomic

situation, the Monetary Policy Committee (MPC) at its meeting today (April 6, 2023)
decided to:

• Keep the policy repo rate under the liquidity adjustment facility (LAF)
unchanged at 6.50 per cent.
 2

The standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the
marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.

• The MPC also decided to remain focused on withdrawal of accommodation

to ensure that inflation progressively aligns with the target, while supporting
growth.

These decisions are in consonance with the objective of achieving the medium-term
target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per
cent, while supporting growth.

The main considerations underlying the decision are set out in the statement below.

Assessment

Global Economy

6. Global economic activity remains resilient amidst the persistence of inflation at

elevated levels, turmoil in the banking system in some advanced economies (AEs), tight
financial conditions and lingering geopolitical hostilities. Recent financial stability
concerns have triggered risk aversion, flights to safety and heightened financial market
volatility. Sovereign bond yields fell steeply in March on safe haven demand, reversing
the sharp increase in February over aggressive monetary stances and communication.
Equity markets have declined since the last MPC meeting and the US dollar has pared its
gains. Weakening external demand, spillovers from the banking crisis in some AEs,
volatile capital flows and debt distress in certain vulnerable economies weigh on growth
prospects.

Domestic Economy

7. The second advance estimates (SAE) released by the National Statistical Office
(NSO) on February 28, 2023 placed India’s real gross domestic product (GDP) growth at
7.0 per cent in 2022-23. Private consumption and public investment were the major
drivers of growth.

8. Economic activity remained resilient in Q4. Rabi foodgrains production is expected

to increase by 6.2 per cent in 2022-23. The index of industrial production (IIP) expanded
by 5.2 per cent in January while the output of eight core industries rose even faster by 8.9
per cent in January and 6.0 per cent in February, indicative of the strength of industrial
activity. In the services sector, domestic air passenger traffic, port freight traffic, e-way
bills and toll collections posted healthy growth in Q4, while railway freight traffic
registered a modest growth. Purchasing managers’ indices (PMIs) pointed towards
sustained expansion in both manufacturing and services in March.

9. Amongst urban demand indicators, passenger vehicle sales recorded strong

growth in February while consumer durables contracted in January. Among rural demand
indicators, tractor and two-wheeler sales were robust in February. As regards investment
activity, growth in steel consumption and cement output accelerated in February.
Merchandise exports and non-oil non-gold imports contracted in February while the
strong growth in services exports continued.
 3

10. CPI headline inflation rose from 5.7 per cent in December 2022 to 6.4 per cent in
February 2023 on the back of higher inflation in cereals, milk and fruits and slower
deflation in vegetables prices. Fuel inflation remained elevated, though some softening
was witnessed in February due to a fall in kerosene (PDS) prices and favourable base
effects. Core inflation (i.e., CPI excluding food and fuel) remained elevated and was
above 6 per cent in January-February. The moderation observed in inflation in clothing
and footwear, and transportation and communication was largely offset by a pick-up in
inflation in personal care and effects and housing.

11. The average daily absorption under the LAF moderated to ₹1.4 lakh crore during
February-March from an average of ₹1.6 lakh crore in December-January. During
2022-23, money supply (M3) expanded by 9.0 per cent and non-food bank credit rose by
15.4 per cent. India’s foreign exchange reserves were placed at US$ 578.4 billion as on
March 31, 2023.

Outlook

12. The inflation trajectory for 2023-24 would be shaped by both domestic and global
factors. The expectation of a record rabi foodgrains production bodes well for the food
prices outlook. The impact of recent unseasonal rains and hailstorms, however, needs to
be watched. Milk prices could remain firm due to high input costs and seasonal factors.
Crude oil prices outlook is subject to high uncertainty. Global financial market volatility
has surged, with potential upsides for imported inflation risks. Easing cost conditions are
leading to some moderation in the pace of output price increases in manufacturing and
services, as indicated by the Reserve Bank’s enterprise surveys. The lagged pass-
through of input costs could, however, keep core inflation elevated. Taking into account
these factors and assuming an annual average crude oil price (Indian basket) of US$ 85
per barrel and a normal monsoon, CPI inflation is projected at 5.2 per cent for 2023-24,
with Q1 at 5.1 per cent, Q2 at 5.4 per cent, Q3 at 5.4 per cent and Q4 at 5.2 per cent,
and risks evenly balanced (Chart 1).

13. A good rabi crop should strengthen rural demand, while the sustained buoyancy in
contact-intensive services should support urban demand. The government’s thrust on
capital expenditure, above trend capacity utilisation in manufacturing, double digit credit
growth and the moderation in commodity prices are expected to bolster manufacturing
and investment activity. According to the RBI’s surveys, businesses and consumers are
optimistic about the future outlook. The external demand drag could accentuate, given
slowing global trade and output. Protracted geopolitical tensions, tight global financial
conditions and global financial market volatility pose risks to the outlook. Taking all these
factors into consideration, real GDP growth for 2023-24 is projected at 6.5 per cent with
Q1:2023-24 at 7.8 per cent; Q2 at 6.2 per cent; Q3 at 6.1 per cent; and Q4 at 5.9 per
cent, with risks evenly balanced (Chart 2).
 4

14. With CPI headline inflation ruling persistently above the tolerance band, the MPC
decided to remain resolutely focused on aligning inflation with the target. It is essential to
rein in the generalisation of price pressures and anchor inflation expectations. An
environment of low and stable prices is necessary for the resilience in domestic economic
activity to be sustained. While the policy rate has been increased by a cumulative 250
basis points since May 2022, which is still working through the system, there can be no
room for letting down the guard on price stability. Taking these factors into account, the
MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting,
with readiness to act, should the situation so warrant. The MPC will continue to keep a
strong vigil on the evolving inflation and growth outlook and will not hesitate to take
further action as may be required in its future meetings. The MPC also decided to remain
focused on withdrawal of accommodation to ensure that inflation progressively aligns with
the target, while supporting growth.

15. All members of the MPC – Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth
R. Varma, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das –
unanimously voted to keep the policy repo rate unchanged at 6.50 per cent.

16. Dr. Shashanka Bhide, Dr. Ashima Goyal, Dr. Rajiv Ranjan, Dr. Michael Debabrata
Patra and Shri Shaktikanta Das voted to remain focused on withdrawal of
accommodation to ensure that inflation progressively aligns with the target, while
supporting growth. Prof. Jayanth R. Varma expressed reservations on this part of the
resolution.

17. The minutes of the MPC’s meeting will be published on April 20, 2023.

18. The next meeting of the MPC is scheduled during June 6-8, 2023.
 5

Voting on the Resolution to keep the policy repo rate at 6.50 per cent

Member Vote
Dr. Shashanka Bhide Yes
Dr. Ashima Goyal Yes
Prof. Jayanth R. Varma Yes
Dr. Rajiv Ranjan Yes
Dr. Michael Debabrata Patra Yes
Shri Shaktikanta Das Yes

Statement by Dr. Shashanka Bhide

19. The Second Advance Estimates (SAE) of the National Income for FY 2022-23
released by the National Statistical Office have retained the overall YOY growth of GDP
at constant prices at 7 per cent as provided in the First Advance Estimates (FAE)
published on January 6, 2023. However, the Provisional Estimates have been replaced
by the First Revised Estimates (FRE) for 2021-22 as the base and the estimated GDP for
2022-23 is now actually higher by 1.3 per cent in the SAE than in FAE. Private Final
Consumption expenditure, Gross Fixed Investment expenditure and exports of goods and
services growth rates in FY 2022-23 have exceeded the growth rate of overall GDP.
Slower growth of Government Final Consumption expenditure and higher imports have
offset the higher pace of growth of other demand components.

20. While the overall GDP growth reflects the resilience of the economy, a large part
of this strength is contributed by the sharp increase in the first quarter of the year, a
reflection of the rebound from the sharp COVID-19 impact of Q1 FY 2020-21. The YOY
growth rate of GDP in Q1: 2022-23 is now placed at 13.2 per cent and the growth in the
subsequent two quarters at 6.3 and 4.4 per cent. At the sectoral level, the growth drivers
are the contact intensive Trade, Hotels, Transport, Communication and Services related
to Broadcasting; Electricity, Water Supply and Other utilities; and Construction, which
have registered higher YOY growth rates of Gross Value Added compared to the overall
GVA growth rate of 6.6 per cent for FY 2022-23. Growth rate of the GVA of
Manufacturing in FY 2022-23 is less than 1 per cent. The growth performance, therefore,
points to both uneven growth across production sectors and subdued growth in the more
recent quarters of FY 2022-23.

21. The weak global economic environment is marked by decelerating demand and
uncertainty in the financial markets and energy markets. Some of the weakening demand
conditions are due to the monetary policy tightening in the major advanced economies
and the slower pace of growth in China. The financial market uncertainty is both due to
the slowing global growth, monetary policy actions to bring down high inflation rates and
the continued year-long Ukraine war impacting a range of markets including energy.
These conditions are expected to prevail at least until the inflation rates moderate
significantly. Both IMF and the World Bank have projected World Output YOY growth
rates of less than 3 per cent in 2023 and marginally above 3 per cent in 2024. The drag
on India’s exports - particularly goods exports - due to these adverse global demand
conditions is, therefore, expected to prevail in FY 2023-24.

22. Several factors are in play in determining the domestic output growth conditions in
the short-term. The dynamics of high frequency indicators points to continuation of the
present growth momentum. For example, the PMI for manufacturing and Services in
March have continued to reflect an expansionary phase, although both are below their
 6

recent peaks. The GST collections and Railway freight traffic indicator show moderation
in YOY growth in Q3: FY 2022-23 and the recent months of January-February 2023.
Non-food credit growth, however, continued expansion at double digit rates. The sales
growth data for the corporate sector, indicates price rise is an important driver of revenue
growth in Q3: FY 2022-23.

23. The business outlook sentiments show a mixed picture. RBI’s survey of
enterprises conducted during January-March 2023 points to a moderation of its Business
Expectations index for the manufacturing sector firms in Q1: FY 2023-24, although the
Business Assessment Index for the prevailing conditions moved up in Q4: FY 2022-23.
Both the indices indicate an expansion of economic activities. Expectations of the overall
business situation indicate rising optimism through Q1: FY 2023-24 to Q3: 2023-24 in the
case of enterprises in the services and infrastructure sectors. Improvement in profit
margins is expected by markedly smaller proportion of manufacturing enterprises in Q1:
FY 2023-24 compared to Q4: FY 2022-23 than the enterprises in services and
infrastructure. Increase in selling prices appears to be necessary to drive improvement in
profit margin. The survey of Consumer Confidence for March 2023 points to expectations
of improved conditions for employment over the expectations held in the previous round
of the survey, with a marginal decline in sentiments on general economic conditions and
household income. In all the three indicators of perceptions of the economy, one-year
ahead situation is seen to be substantially superior to the present.

24. The estimates of GDP growth (YOY), for FY: 2023-24 provided by a number of
agencies in the period from January 2023 onwards, have been around 6 per cent. The
RBI’s Survey of Professional Forecasters conducted in March 2023 provides a median
forecast of 6.0 per cent for 2023-24. Taking into account the growth trends and factors
influencing growth along with an assumption of a normal monsoon for 2023 the GDP
growth for FY 2023-24 is projected at 6.5 per cent with quarterly break up of Q1 at 7.8
per cent, Q2 at 6.2 per cent, Q3 at 6.1 per cent and Q4 at 5.9 per cent. The key concern
on the growth front in the immediate future is the drag caused by the weak external
demand conditions. The impact of any adverse weather conditions on Indian agriculture
provides additional downside risk to the growth trajectory.

25. The headline Consumer price index rose by 6.5 and 6.4 per cent in January and
February 2023, respectively, breaching the upper limit of the tolerance band of the policy
target of 4% inflation, after two months of below 6 per cent inflation rate in November and
December 2022. The key drivers of this high level of overall inflation rate in the recent
two months were food items, particularly, cereals, milk and products, spices and
‘prepared meals, snacks and sweets’. However, the inflation rate of the category
comprising of items excluding food and fuel, and light has also remained at or above 6
per cent in the first two months of the present calendar year. Among the components of
the core inflation which exclude food and fuel items, price rise was well above 6 per cent
in the case of Clothing & Footwear, Household Goods & Services, Health and Personal
care & effects. Fuel & light has also been at close to double digit inflation rate in the first
11 months of FY 2022-23. A positive feature of the overall inflation trend is a decline in
the month-to-month momentum, decelerating in February 2023. This development needs
to be watched as the seasonal patterns may begin to reverse this pattern.

26. The combined impact of decelerating international commodity prices, significant

monetary policy rate increases since May 2022 leading to higher bank deposit and
lending rates is yet to translate into inflation rates below the upper tolerance band of the
target in a sustained manner. There are significant downside risks to output growth
 7

momentum and gains from price led revenues for the firms may be limited. While policy
rate increases were effected over a period of May 2022 to February 2023, the cumulative
impact of these policy actions is yet to be realised. The recent Inflation Expectations
Survey of Households by the RBI, points to expectations of reduction in inflation rate 3-
months ahead and one-year ahead. The survey of firms by the Indian Institute of
Management Ahmedabad points to reduction in the one-year ahead expected business
inflation based on a cost-based Business Inflation Index in February 2023 compared to
January 2023. The survey also finds a marginal increase in the one-year ahead
expectations of CPI inflation in February 2023 as compared to the expectations in
December 2022, with expectations of YOY inflation rates in both the rounds below 5 per
cent 1.

27. The forecast for FY 2023-24 points to a reduction in inflation rate below the upper
tolerance band of 6 per cent with Q1 at 5.1 per cent, Q2 and Q3 at 5.4 per cent, Q4 at
5.2 per cent and an annual average rate of 5.2 per cent. The decline in projected inflation
rates is also supported by the base effect of high inflation rate in FY 2022-23.

28. While these projections point to a path towards achieving the inflation target in the
medium term, there are clearly upside risks associated with these projections. The
weather uncertainty affecting key agricultural prices globally and in the domestic markets,
higher fuel and energy prices due to the supply disruptions resulting from geo-political
conflicts and policies may lead to spikes in inflation rate and reversal of these shocks
also may not be quick. In this context, it is important to assess the extent of the impact of
monetary policy actions on inflation rate, besides the other developments.

29. Taking into account the projected patterns of growth and inflation for FY 2023-24,
the risks attached to these projections and a need to watch the cumulative impact of the
monetary policy actions so far, I believe that a pause in the policy rates is appropriate in
this meeting, without any commitments on the subsequent actions except that aligning
the inflation rate with the target will remain a policy priority.

30. Accordingly I vote:

(a) to keep the policy repo rate unchanged at 6.50 per cent, and
(b) to remain focused on withdrawal of accommodation to ensure that inflation
progressively aligns with the target, while supporting growth.

Statement by Dr. Ashima Goyal

31. The global slowdown is turning out to be less severe than expected but there are
signs of a slowing in both growth and inflation suggesting central banks (CBs) tightening
is adequate and lagged effects will bring about the required further fall in inflation. But as
financial stress materialized in some advanced economies (AEs), as was to be expected
with sharp tightening following sustained excess liquidity, the major CBs had to continue
to tighten to demonstrate absence of financial dominance. Fortunately, India had financial
deleveraging prior to the pandemic, much stronger and more broad-based regulation and
supervision, as well as ongoing focus on corporate governance, so its financial sector
has actually outperformed under pluri-shocks 2. Continued regulatory vigilance is
essential, but it is not necessary to demonstrate independence from financial dominance

1
https://www.iima.ac.in/sites/default/files/2023-04/February%202023%20results.pdf.
2
Goyal, A. 2023. 'Lessons from Outperformance in the Indian Financial Sector.' IGIDR Working paper no. WP-2023-002. Available at:
http://www.igidr.ac.in/pdf/publication/WP-2023-002.pdf.
 8

here. Instead, India’s better policies and buffers make it possible to demonstrate
independence from AE CBs and their weaknesses. Inflation here is also different. It is
relatively close to target—excess demand due to over-stimulus or second round effects
due to a tight labour market are not driving it.

32. Although growth is resilient, there are signs of slowdown in some high frequency
data. Softening non-oil non-gold imports point to weakness in domestic demand; slowing
exports are affecting manufacturing; rising loan rates are reducing demand for low
income housing.

33. A 2012 RBI working paper 3 found monetary policy impacts output with a lag of 2-3
quarters and inflation with a lag of 3-4 quarters with the impact persisting for 8-10
quarters. The interest rate channel accounted for about half of the total impact of
monetary shocks on output growth and about one-third of the total impact on inflation. Its
effect on output was 2-3 times greater than that on inflation. Exchange rate changes had
an insignificant impact on output growth, but a non-negligible impact on inflation. Many
time series estimations before and since then had a similar pattern of results. A recent
IGIDR M.Phil. on monetary transmission, using current data, also analysed GDP
components and found monetary policy had the largest impact on investment through
falling equity prices 4.

34. By October 2022 the repo rate had risen to a material level (5.9%) with liquidity
also tightening and spreads rising for many short-term market instruments. And we see
some growth softening two quarters later. The lagged effects of the rate rise are just
beginning, and may continue to play out over the next few months. Those on inflation will
follow.

35. But the estimations above do not include the expectations channel of monetary
policy transmission. To the extent policy rates rise with inflation and clear communication
on the inflation target anchors inflation expectations, and there is evidence for this 5, the
interest rate channel does not have to carry the entire burden of adjustment. Inflation will
fall faster and the growth sacrifice required to reach the inflation target is lower. This is
more so if supply-side action is also reducing inflation. Such policy is part of the BCCR
approach—balanced, countercyclical policy with good coordination across fiscal and
monetary policy and continuing reform, which has helped make India a bright spot in a
gloomy global macroeconomic scene.

36. Inflation is expected to come down over the year. There is the base effect but
momentum is also slowing in some consumer goods. The RBI’s enterprise surveys
shows firms expect inputs costs and selling prices to moderate. The exchange rate is
stable or strengthening. The weightage issue that raised cereal prices sharply in the past
2 months is expected to have a reverse effect as market prices fall.

37. Since the inflation forecast for FY24 is 5.2% with Q4 at 5.2%, a repo rate at 6.5%
implies the real policy rate is greater than one. It has already tightened enough to
progressively bring inflation towards the target of 4%, with other complementary policies

3
Khundrakpam, J. K. and R. Jain. 2012. ‘Monetary Policy Transmission in India: A Peep inside the Black Box’, RBI working paper
series no. 11. Available at https://www.rbi.org.in/scripts/PublicationsView.aspx?id=14326.
4
Mogor, B. 2023. ‘Relative Effectiveness of Monetary Policy Transmission Channels: Evidence from India’, IGIDR M.Phil. dissertation,
31st March.
5
Goyal, A. and Parab, P. 2023. 'Working of Expectations Channel of Monetary Policy in India.' Journal of International Commerce,
Economics and Policy, 14(1): 1-38.
 9

and barring major new shocks. A further rise in real interest rates is best avoided at
present since high real rates can trigger a non-linear switch to a low growth path 6.

38. There is no logic for overshooting policy rates and then cutting in a country such
as India where the largest impact of the interest rate is on growth, the relation between
expected rupee depreciation and interest rates is weak, many tools are available to
reduce excess volatility of the exchange rate and have been successfully used, the
current account deficit has reduced and its financing is no longer an issue. Moreover, the
exchange rate is not directly included in the mandate of the MPC.

39. In view of these arguments, I vote for a pause. But because of erratic weather and
continuing global uncertainties, and until it is clear that inflation is well on the path to
reaching the target, it is necessary to emphasize that this may not be the end of the rate
hikes. So I also vote for withdrawal of accommodation as the stance. But this stance is
now with respect to the repo rate, so it is consistent with the injection of durable liquidity if
shocks are so large that LAF instruments prove inadequate. Major CBs have allowed
their balance sheets to expand as required for other reasons, while at the same time
raising repo rates for monetary policy purposes.

Statement by Prof. Jayanth R. Varma

40. Two inflationary risks have come to the fore since the February meeting. The first
risk emanates from the announcement of an output cut by OPEC+ during the weekend
just before the MPC meeting. Crude oil promptly reversed the entire price decline of the
preceding weeks and settled slightly above the levels prevailing at the February meeting.
The output cut by itself is not worrying as it could simply represent an attempt by OPEC+
to match supply to sluggish demand in a slowing global economy. It would become a
matter of concern only if it signals a structural change in the geopolitical alignment of the
major oil producing countries. So far, the crude oil market has been relaxed about this
development with the futures curve continuing to slope downward. Nevertheless, the
MPC needs to keep a careful watch on this evolving situation. If crude were to creep
towards the triple digit mark, there might be a need for a monetary response.

41. The second risk relates to the monsoon. It is only around mid April that scientists
are able to provide monsoon forecasts with some degree of confidence, and the forecast
accuracy improves towards the end of May. In this meeting, therefore, the MPC has no
choice but to operate under the default assumption of a normal monsoon. However, in
recent weeks, there has been increasing concern about some unfavourable
oceanographic patterns that could impact the monsoon this year. A deficient monsoon
would likely create inflationary pressures that would need to be counteracted with
monetary policy measures. We will however have to wait till May or even early June to
have reasonable clarity on this matter.

42. On the growth front, early warning signs of a possible slowdown are visible to a
greater extent than in February. In the current situation of high inflation, monetary policy
does not have the luxury of responding to these growth headwinds. In fact, it is almost
axiomatic that monetary action can cool inflation only by suppressing demand. However,
policy makers must be vigilant against overshooting the terminal policy rate, and thereby
slowing the economy to a greater extent than what is needed to glide inflation to the
target.

6
Goyal, A. and A. Kumar. 2018. ‘Active Monetary Policy and the Slowdown: Evidence from DSGE based Indian Aggregate Demand
and Supply’. The Journal of Economic Asymmetries. 17: 21-40. June. DOI: https://doi.org/10.1016/j.jeca.2018.01.001.
 10

43. The balance of risks has, in my view, shifted slightly towards inflation since the
February meeting, but the best estimate currently is that the 315 basis points of effective
tightening of the overnight interest rate (from a reverse repo rate of 3.35% to a repo rate
of 6.50%) would be quite sufficient to bring inflation under control. Therefore, I vote in
favour of keeping the policy rate unchanged in this meeting.

44. Turning to the stance, I must confess that I fail to comprehend its meaning. My
colleagues in the MPC assure me that the language is crystal clear to market participants
and others. It may well be that I am the only person who finds it hard to understand. But I
am unable to reconcile the language of the stance with the simple fact that no further
“withdrawal of accommodation” remains to be done since the repo rate has already been
raised to the 6.50% level prevailing at the beginning of the previous easing cycle in
February 2019. It is of course possible to undertake further tightening, but that would not
constitute a “withdrawal of accommodation” by any stretch of the imagination.

45. One interpretation that has been offered is that the real interest rate measured
using the most recent published inflation rate needs to rise further. This is doubtless true,
but monetary policy should not be conducted by looking at the rear view mirror. The real
interest rate must be measured against the projected inflation rate 3-4 quarters ahead,
and, as things stand right now, there is very little ground to argue for a further rise in the
correctly measured real interest rate. Moreover, even if a flawed definition of the real
interest rate is accepted, the projected rise in this real rate would not require any action
by the MPC; it would happen as a mechanical result of a falling inflation rate and an
unchanged policy rate. And the projected fall in the inflation rate would be a consequence
of what the MPC has already done, and not what it will do in coming months.

46. I cannot put my name to a stance that I do not even understand. At the same time,
it is clear that the war against inflation has not yet been won, and it would be premature
to declare an end to this tightening cycle. There is need for heightened vigilance in the
face of the fresh risks that I highlighted earlier in my statement. For these reasons, I
refrain from dissenting on this part of the resolution, and confine myself to expressing
reservations on it.

Statement by Dr. Rajiv Ranjan

47. Let me begin from where I ended my last minutes of February 2023: “Going
ahead, assessment of the impact of the cumulative rate hikes will become important
especially in view of higher policy transmission in a primarily bank-based economy”.
Consistent with that assessment and in the wake of new information that has since
become available, I vote for a pause in today’s meeting.

48. First, the crosscurrents of uncertainty continue to sweep across the globe. The
challenges faced in recent times have raised important questions about the conduct of
monetary policy under heightened uncertainty. The gradient of unpredictability in the
economy runs deeper from quantifiable risks in the near term to unknowable Knightian
uncertainty (Knight, 1921) 7 over longer time horizons. Faced with these uncertainties, the
‘science’ of monetary policy – which is premised on a forward-looking and a rule-based
approach (Clarida, Gali, and Gertler, 1999) 8 – must be blended with the ‘art’ of monetary
policy, which is data-centric and based on prudent judgement of policymakers. A virtuous

7
https://archive.org/details/riskuncertaintyp00knigrich
8
https://www.aeaweb.org/articles?id=10.1257/jel.37.4.1661
 11

guide to policymaking in such times is to tread cautiously (Orphanides, 2003). 9 As the

then President of the ECB, Mario Draghi, put it, “in a dark room you move with tiny
steps.” 10 I believe we are currently poised appropriately at this juncture to pause in the
backdrop front-loaded rate actions even as monetary policy remains finely calibrated to
the domestic and global situation.

49. Second, there are some clear positive signals visible on the domestic front.
Inflationary expectations are gradually easing, domestic growth momentum remains
robust, and India, so far, is insulated from the global banking crisis.

50. Third, it is important to keep in mind that there was considerable noise in the high
inflation readings of January-February 2023 attributed to the statistical effect with respect
to treatment of cereals. 11

51. Fourth, though inflation at present remains above the comfort zone, there are
reasons for optimism going forward. The heat wave of February and the unseasonal rains
of March are expected to have only some localised impacts, raising the prospects of an
overall good rabi harvest. High frequency food price indicators for the month of March are
already indicating a decline in wheat prices. Furthermore, international food prices have
registered a decline of around 19 per cent in February 2023 from its peak in March 2022,
which could help lower costs for critical import dependent food items through appropriate
trade policies. Global metals and industrial input prices have also seen significant
correction from their March 2022 peak levels which could likely result in softening of core
inflation pressures over the year, though in a protracted manner. The key factors that
could adversely affect the inflation trajectory over 2023-24 are climate related, structural
demand-supply imbalance in important food items such as milk and volatile crude oil
prices. At present, there is considerable uncertainty on how these events will play out
over the year; hence, a wait and watch approach may be a better strategy.

52. Fifth, though core CPI inflation (excluding food and fuel) continued to remain sticky
and elevated, there are signs of a modest softening in February, which was also
observed across various other exclusion as well as trimmed mean measures of
underlying inflation. The month-over-month (MoM) seasonally adjusted annualised rate
(SAAR) of core CPI has also slowed down from around 6 per cent in December 2022 to
around 5 per cent in February 2023. Moreover, headline CPI diffusion indices for
February, though indicating an expansion of prices, also showed that for the first time
since July 2022, a significant majority the CPI basket registered price increases of less
than 6 per cent (SAAR). Diffusion indices for a core CPI which also excludes petrol,
diesel, gold and silver have also indicated price expansion at rates lower than 6 per cent
(SAAR) since November 2022. Softer household inflation expectations revealed by RBI’s
latest survey provides comfort that second order effects on inflation will also remain
subdued.

9
Orphanides, A. (2003). Monetary policy evaluation with noisy information. Journal of Monetary economics, 50(3), 605-631.
10
https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190307~de1fdbd0b0.en.html
11
Since January 2023, states where prices of rice and wheat under public distribution system (PDS) was reduced to zero, there was
redistribution of CPI weights of these zero priced PDS items to other items in the cereals group. The higher weightage to such market
priced items, amidst rising market prices, pushed up sharply the published inflation rate in cereals (Das, P. and A. T. George (2023),
Consumer Price Index: The Aggregation Method Matters, Reserve Bank of India Bulletin, March).
 12

53. Sixth, new incoming information suggests that the growth outlook for 2023-24 has
improved with investment revival likely to become more entrenched along with a lesser
drag from external demand. The government’s sustained focus on infrastructure
spending will also crowd in private investment and support growth. 12

54. Seventh, during the last one year of monetary policy normalisation, the operating
target of monetary policy is up by around 320 basis points, the effects of which are yet to
be fully transmitted to domestic macroeconomic aggregates. In the backdrop of
increasing depth and liquidity in financial markets, the long and variables lags of
monetary policy may have shortened in recent years, supported by complementary tools
of better communication, forward guidance and balance sheet policies. The shift to
external benchmark lending rate (EBLR) is an additional factor that has hastened the
speed of transmission. Under these conditions, monetary policy tightening needs to be
calibrated judiciously.

55. Eighth, real policy rates whether ex ante, or ex post, whether based on headline or
core inflation, are now positive and expected to increase further given our projected
inflation path. 13

56. Notwithstanding this, let me state that this is a ‘wait and watch’ pause. It is neither
a ‘premature’ pause nor a ‘permanent’ one. Not ‘premature’ because we have already
increased policy rate by 250 bps in about a year with frontloaded rate action of about 190
bps during the first 5 months. Not ‘permanent’ as any durable decline in inflation towards
the target of 4 per cent is still distant. 14 Therefore, I vote to continue with our stance of
withdrawal of accommodation. The inherent strength and resilience of the Indian
economy with inflation expected to moderate going forward inspires confidence of our
actions.

Statement by Dr. Michael Debabrata Patra

57. The momentum of economic activity in India is broadening, and slack is being
pulled in. The underlying price build-up indicates that demand pressures remain strong,
especially for contact-intensive services. Hence, inflation remains elevated and
generalised; and, as I stated at the time of the MPC’s February 2023 meeting, it is the
biggest risk to the outlook for the Indian economy.

58. The lessons of experience and empirical evidence show incontrovertibly that
inflation ruling above 6 per cent – as it has done through 2022-23 – is inimically harmful
for growth. This is already showing up in the deceleration of private consumption
spending and the moderation in sales growth in the corporate sector which, in turn, is
hamstringing new investment. In my view, the baseline projection for real GDP growth at
6.5 per cent for 2023-24 will benefit from an upside from budgeted capital expenditure;
this advantage should not, however, be frittered away by inflation. By current reckoning,
the future path of inflation is vulnerable to several supply shocks. The MPC must
accordingly remain on high alert and ready to act pre-emptively if risks intensify to both
sides of its commitment: price stability and growth.

12
Public investment multiplier on private investment and real GDP is found well over unity at 1.2 and 1.7, respectively, over a three-
year period [Monetary Policy Report (MPR), April 2023].
13
Please refer my February 2023 minutes, … small positive real rates had given adequate reasoning for paring down rate hikes
though not enough to pause.
14
Inflation forecast is at 5.2 per cent even by end-quarter of 2023-24. Moreover, average for 2024-25 is at 4.5 per cent as per MPR
April 2023.
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59. Monetary policy must persevere with the withdrawal of accommodation. The
stance of policy has to remain disinflationary and unwavering in its resolve to align
inflation with the target of 4 per cent. It is prudent to anticipate future shocks to the
inflation trajectory while evaluating the cumulative tightening of monetary policy so far.
Bank credit growth is already reflecting the pass-through of past monetary policy actions,
although it remains robust relative to the pace of underlying activity in the economy, and
financial conditions more generally are supportive of growth.

60. While I vote for a pause in this meeting, an ongoing assessment of the
macroeconomic outlook should inform a preparedness to re-calibrate monetary policy
towards a more restrictive stance with consistent actions, should risks to the inflation
trajectory materialise and impede its alignment with the target. The process of getting
inflation back to target could turn out to be gradual and uneven, but the mission of
monetary policy is to shepherd this process through potential bumps while containing
second round effects and anchoring inflation expectations.

Statement by Shri Shaktikanta Das

61. Since the last meeting of the MPC in February 2023, the global economic
environment has changed dramatically. While issues of geopolitics and high inflation
continue to impact the outlook, the emergence of banking sector turmoil on both sides of
the Atlantic and the sudden announcement of oil production cut by the OPEC+ countries
have rendered the global outlook even more uncertain. Global inflation is easing but at a
tardy pace. Central banks face a runway which is becoming narrower and bumpy for soft-
landing.

62. Against this background, inflation in India during January-February 2023 exceeded
the upper tolerance limit of 6 per cent after a transitory respite during November-
December 2022. Going forward, inflation projection for 2023-24 is indicating a moderation
to an average of 5.2 per cent. Both domestic as well as global factors are expected to
bring about this disinflation. There is better optimism on rabi harvest despite the recent
unseasonal rains. This could significantly reduce price pressures on rabi food crops,
particularly wheat. Further, prices of edible oils have moderated. The softening of global
commodity prices from their peak levels a year ago is translating into lower input cost
pressures for manufactured goods and services. These could result in some softening of
core inflation going forward. The overall situation, nonetheless, remains dynamic and fast
evolving. Clarity on monsoon would be available in the coming months. Milk prices may
remain firm in the lean summer season on tight demand-supply balance and high fodder
costs. The rising uncertainty in international crude oil prices also warrants close
monitoring.

63. In parallel, domestic growth impulses remained buoyant in Q4:2022-23. Looking

ahead, the thrust on infrastructure spending by the government would support investment
activity. The drag from net external demand is moderating. Overall, broadening of
economic activity and the strength of the external sector have allowed us room to remain
steadfastly focused on inflation.

64. We have consecutively raised the policy repo rate by 250 basis points since May
2022 when we started the current rate hike cycle. Together with the introduction of the
Standing Deposit Facility (SDF) at a rate 40 basis points above the fixed rate reverse
 14

repo rate, the effective rate hike has been 290 basis points. In tandem, our market
operations have reined in surplus liquidity in an orderly manner. These actions have
collectively transmitted into the weighted average call money rate (WACR), the operating
target of monetary policy, along with other short-term rates.

65. The cumulative impact of our monetary policy actions over the last one year is still
unfolding and needs to be monitored closely. Inflation for 2023-24 is projected to soften,
but the disinflation towards the target is likely to be slow and protracted. The projected
inflation in Q4:2023-24 at 5.2 per cent would still be well above the target. Therefore, at
this juncture, we have to persevere with our focus on bringing about a durable
moderation in inflation and at the same time give ourselves some time to monitor the
impact of our past actions. I am, therefore, of the view that we do a tactical pause in this
meeting of the MPC. Accordingly, I vote for a pause in rate action and for remaining
focused on withdrawal of accommodation to ensure that inflation progressively aligns with
the target, while supporting growth. This is a tactical pause and not a pivot or a change in
policy direction. We will continue to monitor all incoming information and undertake
forward-looking assessment of the evolving economic outlook and stand ready to act,
should the situation so warrant. Our fight against inflation is far from over and we have to
continue with our efforts to bring down inflation closer to the target over the medium term.

(Yogesh Dayal)
Press Release: 2023-2024/88 Chief General Manager
INGENIOUS May-Jun 2023

O f f i c e B e a re r s

CHAIRPERSON
Mr. R. Gopinath
CONVENOR

MEMBER
SECRETARY

Mr. Ankur Shah Ms. Savita Pillai Ms. Bharathi Srinivasan

MEMBER

MEMBER

MEMBER

Mr. Atul Jain Mr. Ajay K Tyagi Mr. Inderpal S Bindra

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