The Reserve Bank of India’s MPC kept repo rate unchanged for the sixth time in a row on Thursday. The Monetary Policy Committee (MPC) of the central bank held deliberations for last three days and made an announcement in this regard on Feb. 8, Thursday.
RBI keeps key rate at 6.5%
Maintaining stability, the RBI has held the repo rate at 6.5 percent for the past year. The last adjustment occurred in February 2023 when it was raised from 6.25 percent due to global economic dynamics triggering inflation concerns.
Despite a decline in retail inflation from its July 2023 peak of 7.44 percent to 5.69 percent in December 2023, it persists at an elevated level. While within the RBI’s comfort range of 4-6 percent, ongoing vigilance is warranted given the current economic landscape.
RBI maintains FY24 inflation forecast unchanged at 5.4%
Despite concerns about rising food prices, uncertainty in crude costs amid recent fluctuations, and the potential for domestic growth momentum to create demand pressure on inflation, the Reserve Bank opted to maintain its inflation forecast for this fiscal year at 5.4%.
The RBI Governor emphasized that there is a need to be vigilant against potential new supply shocks. He said that headline inflation is still at a high level with significant volatility throughout this year.
Retail inflation forecast for FY25 retained at 4.5%
Forecast for retail inflation based on consumer price index (CPI) for FY2024-25 has been retained at 4.5 percent, RBI Governor Shaktikanta Das said.
The Reserve Bank of India has provided a comprehensive outlook on inflation for the upcoming fiscal year, FY25. The projections indicate a nuanced trajectory, with an overall retail inflation forecast of 4.5%. Breaking down the quarterly expectations, the first quarter is anticipated to see a rate of 5%, followed by a slight dip to 4% in the second quarter. Moving into the third quarter, the projection edges up to 4.6%, and the final quarter is estimated to witness inflation at 4.7%. These projections provide valuable insights for policymakers and businesses to navigate the evolving economic landscape.
Das said geopolitical tensions have disrupted the supply chain, which, in turn, has led to inflationary woes.
Withdrawal of accommodative stance
“Let me reiterate that our policy stance of withdrawal of accommodation should be seen in the context of incomplete rate transmission and inflation remaining above the 4 percent target,” the RBI Governor said.
The RBI has chosen to engage in two-way market interventions through repo and reverse repo. The central bank assures its commitment to agility and prompt responses to evolving conditions. It underscores that the stance on withdrawing accommodation should be considered in light of incomplete transmission and inflationary concerns.
Real GDP growth for FY25 at 7%
The projected Real GDP growth for the fiscal year FY25 reveals a robust outlook, with an overall growth rate of 7%. Breaking down the quarterly expectations, the first quarter anticipates a growth rate of 7.2%, followed by 6.8% in the second quarter. Moving into the third quarter, the projection holds steady at 7%, and the final quarter is estimated to witness a growth rate of 6.9%. These projections provide insights into the anticipated economic performance throughout the fiscal year.
RBI Governor Shaktikanta Das mentioned that the strength of domestic economic activity persists. He further noted the expectation for the momentum in economic activity witnessed in FY24 to continue into FY25.
Das also said that the debt of central and state governments will moderate in the years to come.
The RBI Governor remarked that the Current Account Deficit for both FY24 and FY25 is under control. The current Forex reserves are reported at $622.5 billion.
