In the latest update from the Reserve Bank of India (RBI), the Monetary Policy Committee (MPC) has decided to keep the repo rate steady at 6.5% for the seventh consecutive time. Governor Shaktikanta Das, during the announcement of the bi-monthly policy meeting, highlighted the committee’s majority decision of 5:1 to maintain the current stance, focusing on liquidity management to curb inflation. The Standing Deposit Facility (SDF) rate remains at 6.25%, while the Marginal Standing Facility (MSF) rate and Bank Rate stand at 6.75%.
Rationale behind the decision
RBI Governor Shaktikanta Das elaborated on the decision, stating that inflation has decreased from its peak of 5.7%. He noted favorable growth-inflation dynamics and a steady decline in core inflation, reaching its lowest point in nine months. Despite volatile food inflation in February, core inflation, excluding food and fuel, has shown a downward trend. Concerns remain regarding the impact of weather variations on inflation and economic stability.
Economic outlook
Finance Minister Nirmala Sitharaman expressed optimism about the economy, citing GDP growth exceeding 8% for the first three quarters of FY24. Some economists anticipate an upward revision in the RBI’s growth projection for FY25, previously forecast at 7%. Consumer price inflation slightly eased to 5.09% in February, prompting anticipation for revisions in GDP forecasts, given the better-than-expected growth performance in FY24. India recorded robust economic growth of 8.4% in the December quarter of fiscal 2023–24, with upward revisions in GDP estimates for preceding quarters by the National Statistical Office (NSO).
Challenges ahead
India braces for extreme heat during the April to June period, particularly impacting central and western regions, potentially affecting the agricultural economy and leading to inflationary pressures as commodity prices rise. Reports suggest India may experience above-average rainfall during July-September, complicating the inflation outlook.
Key figures from the last meeting
- Repo rate remains unchanged at 6.5%.
- GDP growth projection for FY25 at 7%.
- CPI inflation projection for FY25 at 4.5%.
- RBI maintains inflation forecast for the fiscal year at 5.4%.
- GDP growth rates for Q3FY24 and Q4FY24 pegged at 6.5% and 6.0% respectively.
- Real GDP growth rates for Q1FY25, Q2FY25, and Q3FY25 set at 6.7%, 6.5%, and 6.4% respectively.
- Repo rate decision not unanimous; voted 5:1, with Prof. Jayanth R. Varma voting for a change in stance to neutral.