Pr-04-Apr-2023 (2).pdf (199.0 KB)
State Bank Monetary Policy
Monetary and inflation outlook
7. Broad money growth showed a slight uptick in February, primarily due to a significant expansion in net domestic assets of the banking system. This was largely on account of higher public sector borrowing as growth in private sector credit decelerated sharply to 11.1 percent in February 2023 from 18.6 percent in February 2022. On a monthly basis, private sector credit recorded a contraction for the second consecutive month in February.
This contraction was due to retirement in fixed investment and consumer loans, while
working capital loans saw a marginal seasonal uptick during the month.
- As the MPC had anticipated, national CPI inflation further rose to 35.4 percent in March 2023, resulting in average inflation of 27.3 percent during Jul-Mar FY23. The MPC noted that the surge in inflation was broad-based, though a large part of it was contributed by food and energy components. This reflects the passthrough of increases in taxes and duties, unwinding of untargeted energy subsidies and the recent exchange rate depreciation. Importantly, core inflation has risen to 18.6 percent in urban and 23.1 percent in rural baskets, indicating the second-round impacts of the above-mentioned adjustments. The Committee also viewed the increase in core inflation as partly driven by the elevated inflation expectations, as indicated by recent sentiment surveys. To anchor these expectations, the MPC views its current monetary policy stance as appropriate to keep the real interest rate in positive territory on a forward-looking basis.