Repo rate unchanged for 8th time, GDP raised: 5 key takeaways from RBI MPC
New Delhi, Jun 7, 2024
The decision to maintain the repo rate and raise the GDP forecast was made during the Monetary Policy Committee meeting held between June 5 and June 7
The Reserve Bank of India (RBI) has decided to keep the repo rate unchanged at 6.5 per cent. This decision was announced by RBI Governor Shaktikanta Das following the Monetary Policy Committee (MPC) meeting held from June 5 to June 7.
Governor Das said, “The Monetary Policy Committee decided by a 4:2 majority to keep the policy repo rate unchanged at 6.5 per cent. Consequently, the standing deposit facility (SDF) rate remains at 6.25 per cent, and the marginal standing facility (MSF) rate and the bank rate at 6.75 per cent.”
The repo rate, which is the rate at which the RBI lends to commercial banks to address shortfalls in funds, is a key tool used by the central bank to manage liquidity in the economy. This marks the eighth consecutive policy meeting where the repo rate has been maintained at 6.5 per cent.
This policy announcement is significant as it is the first one following the 2024 Lok Sabha election results, which were declared on June 4. It is also the second bi-monthly monetary policy of the financial year 2024-25.
Here are the key takeaways from RBI Monetary Policy 2024:
FY25 GDP growth forecast
Governor Das projected that the Indian economy would grow at 7.2 per cent for the financial year 2024-25, an increase from the earlier projection of 7 per cent.
He elaborated on the quarterly growth expectations, stating, “In Q1 it is expected to grow at 7.3 per cent, in Q2 at 7.2 per cent, in Q3 at 7.3 per cent, and in Q4 at 7.2 per cent. The risks are evenly balanced.”
Specifically, the GDP growth forecasts for FY25 are as follows:
Q1FY25: Increased to 7.3 per cent from 7.1 per cent
Q2FY25: Increased to 7.2 per cent from 6.9 per cent
Q3FY25: Increased to 7.3 per cent from 7 per cent
Q4FY25: Increased to 7.2 per cent from 7 per cent
CPI inflation projection
Das also addressed the Consumer Price Index (CPI) inflation projections for FY25. He stated that CPI inflation for the financial year 2024-25 is expected to be 4.5 per cent. The quarterly projections are as follows:
Q1: 4.9 per cent
Q2: 3.8 per cent
Q3: 4.6 per cent
Q4: 4.5 per cent
Food inflation
Governor Das has expressed concerns over the uncertainties related to food price inflation, stressing the need for vigilance. “Uncertainties related to food price inflation need to be watched closely. We need a descent of inflation to 4 per cent target on a sustainable basis,” Das said.
He also noted that vegetable prices are currently rising due to the summer season. He attributed the recent deflationary trend in fuel prices primarily to reductions in Liquefied Petroleum Gas (LPG) prices. Additionally, Das pointed out the global trend of rising food prices, indicating a shift in broader market dynamics.
Withdrawal of accommodation stance
The MPC decided by a majority of four out of six members to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.
This was aimed to ensure “anchoring of inflation expectations and fuller policy transmission”, according to the RBI Governor.
This was in response to the increase of 250 basis points (bps) in the policy repo rate, the weighted average lending rate (WALR) on fresh rupee loans rose by 204 bps while that on outstanding loans rose by 111 bps (May 2022 – April 2024). During the same period, the weighted average domestic term deposit rates (WADTDRs) on fresh deposits and outstanding deposits rose by 245 bps and 188 bps respectively.
Meanwhile, India’s benchmark equity indices were trading in the green following the RBI’s Monetary Policy announcement. The BSE Sensex rallied 700 points after the central bank raised its FY25 GDP growth forecast. The Nifty50 also surged past the 23,000 mark.
As of 10.40 am, the BSE Sensex was up by 1.04 per cent or 777.61 points, trading at 75,852.12. The Nifty50 increased by 230.10 points or 1.01 per cent, reaching 23,051.50.
[The Business Standard]
