The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has announced its decision to maintain the repo rate at 6.5 percent for the eighth consecutive time. This decision was made with a majority vote of 4-2. In order to align inflation with the RBI’s target, the MPC has chosen to continue with the ‘withdrawal of accommodation’ stance. The last change in the repo rate occurred in February 2023, when it was increased from 6.25 percent to 6.5 percent. From May 2022 to February 2023, the repo rate saw a total increase of 250 basis points (bps).
RBI increased GDP growth forecast for FY25
Das revised the real GDP growth projection for FY25 upwards from 7% to 7.2% during the April meeting. The quarterwise breakdown is as follows: 7.3% in the first quarter, up from 7.1%; 7.2% in the second quarter, up from 6.9%; 7.3% in the third quarter, up from 7%; and 7.2% in the fourth quarter, up from 7%.
Food inflation remains a worry for RBI
Das emphasized the ongoing concern of food inflation for the RBI. He mentioned that the prediction of an above-average monsoon is positive for the Kharif Crop outlook. The central bank governor highlighted that despite the core CPI inflation decreasing for the eleventh consecutive month since June of the previous year, persistent food inflation has counteracted these improvements.
Discussing a normal Monsoon based on the meteorological department’s forecasts, Das projected the CPI for FY25 at 4.5 per cent. The quarterly breakdowns for CPI are 4.9 per cent in the first quarter, 3.9 per cent in the second quarter, 4.6 per cent in the third quarter, and 4.5 per cent in the fourth quarter.
Das stressed the importance of monitoring uncertainties related to food inflation. He emphasized the necessity of reducing inflation to a 4 per cent level consistently while also supporting growth.
This time, economists anticipated the MPC to maintain the benchmark repo rate at 6.5 per cent, aiming to strike a balance between controlling inflation and promoting economic growth.
Regarding the health of the Indian banking sector, Das noted that the banking system remains strong, supported by healthy asset quality and an increase in profitability. He also mentioned that NBFCs exhibited robust financial performance in FY24. The governor concluded by stating that the banking sector, NBFCs, and the overall financial sector are resilient.