• By Goodwill
  • April 5, 2024

RBI Monetary Policy :

RBI monetary policy: Rates remain unchanged, growth outlook bright; 5 key highlights of RBI MPC outcome

RBI monetary policy: The Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced the first monetary policy of the financial year 2024-25. The RBI decided to keep the key policy repo rate unchanged at 6.5 per cent for the seventh consecutive time.

RBI monetary policy: RBI kept the repo rate unchanged on April 5, on expected lines. On expected lines, the Reserve Bank of India (RBI) Governor Shaktikanta Das confirmed on Friday, April 5, that the key policy repo rate would be maintained at 6.5 per cent.

The RBI Governor announced the first monetary policy of the financial year 2024-25, keeping the repo rate unchanged for the seventh consecutive time and maintaining the policy stance at ‘withdrawal of accommodation’.

A majority of analysts and economists expected the RBI to maintain its policy rate and stance considering India’s strong economic growth and sticky inflation. Food prices remain an overhang and the RBI remains focussed on bringing inflation below 4 per cent. 
Let’s take a look at the five key highlights of RBI MPC outcome:

No change in rate, stance

The RBI’s Monetary Policy Committee (MPC) voted by a 5:1 majority to keep key rates 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 MPC also decided by a majority of 5 out of 6 members to remain focused on the ‘withdrawal of accommodation’ to ensure that inflation progressively aligns to the target, while supporting growth,” said Das.

Growth outlook robust

RBI believes consumption will support economic growth in 2024-25, with rural demand catching up as urban consumption stays buoyant.

“Going forward, the outlook for agriculture and rural activity appears bright, with good rabi wheat crop and improved prospects of kharif crops, due to expected normal south-west monsoon,” said Das. 

“Strengthening of rural demand, improving employment conditions and informal sector activity, moderating inflationary pressures and sustained momentum in manufacturing and services sector should boost private consumption,” said Das. 

RBI has projected India’s real GDP growth for FY25 at 7 per cent. It cut the Q1FY25 GDP growth target to 7.1 per cent from the 7.2 per cent projected earlier while the Q2FY25 GDP growth target was raised to 6.9 per cent from 6.8 per cent earlier. Q3FY25 GDP growth target remains unchanged at 7 per cent and Q4FY25 GDP growth target was raised to 7 per cent from 6.9 per cent earlier.

CPI inflation forecast

RBI underscored inflation is easing but the fight against it continues.

“Two years ago, around this time, when CPI inflation had peaked at 7.8 per cent in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk and appears to be returning to the forest,” said Das.

“The success in the disinflation process so far should not distract us from the vulnerability of the inflation trajectory to the frequent incidence of supply-side shocks,” said the governor. 

RBI said food price uncertainties continue to weigh on the inflation trajectory going forward. However, it believes a record rabi wheat production would help temper price pressure and replenish the buffer stock. Moreover, an early indication of a normal monsoon augurs well for the kharif season.

Consumer Price Index-based inflation, or retail inflation, for FY25, is projected at 4.5 per cent, with Q1 at 4.9 per cent, Q2 at 3.8 per cent, Q3 at 4.6 per cent and Q4 at 4.5 per cent.

Trading of sovereign green bonds in IFSC

RBI Governor said a scheme for investment and trading in these Bonds in the International Financial Services Centre (IFSC) will be notified shortly to facilitate wider non-resident participation in sovereign green bonds.

Review of LCR framework on cards

RBI proposes a review of the liquidity coverage ratio (LCR) framework and it said a draft circular will be issued shortly for stakeholder consultation.

Governor Das in his speech pointed out that there is a need to undertake a comprehensive review of the LCR framework for banks as technological developments have enabled bank customers to instantly withdraw or transfer money from their bank accounts which could create challenges for banks.

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