RBI Maintains Status Quo, Raises FY25 GDP Growth Forecast to 7.2%

RBI Maintains Status Quo, Raises FY25 GDP Growth Forecast to 7.2%

Sub: Eco

Sec: Monetary Policy

Key Highlights:

• Policy Repo Rate: The Reserve Bank of India (RBI) decided to keep the policy repo rate unchanged at 6.5%, with a majority vote of 4:2.
• Monetary Policy Stance: The RBI continues with the stance of withdrawal of accommodation.
• Growth Forecast: Revised FY25 GDP growth forecast to 7.2% from the previous estimate of 7%.

Monetary Policy Committee (MPC) Decision:

• The six-member MPC maintained the repo rate at 6.5%.
• External members Ashima Goyal and Jayanth Varma voted for a rate cut of 25 basis points (bps) and a change in stance to neutral. Other four members voted in favor of maintaining the current rate and stance.

Inflation and Economic Outlook:

• Inflation Trends: Inflation is moderating, mainly driven by the core component, although food inflation remains elevated.
• Price Stability: The RBI aims to ensure inflation aligns with the target on a durable basis while maintaining economic growth.
• CPI Inflation Projection: Retained at 4.5% for FY25, with quarterly projections of Q1 at 4.9%, Q2 at 3.8%, Q3 at 4.6%, and Q4 at 4.5%.

Remarks by RBI Governor Shaktikanta Das:

• Highlighted that domestic economic activity has shown resilience, with a revival in rural demand driven by improving farm sector activity.
• Emphasized the need for price stability and monetary policy’s flexibility in addressing inflation.
• Clarified that RBI’s decisions are primarily driven by domestic growth-inflation conditions, despite monitoring global economic policies.

Perspectives:

• Nomura: The RBI’s policy decision was expected, but the vote split indicates growing divergence within the MPC.
• Goldman Sachs: Anticipates a shallow easing cycle with total 50 bps rate cuts from the RBI, likely in Q4 CY24 and Q1 CY25.
• State Bank of India: Liquidity management will be critical, and RBI may need innovative tools for liquidity augmentation.

Future Projections:

• GDP Growth: Revised upward to 7.2% for FY25.
• Rate Cut Expectations: Economists expect the first rate cut in the Oct-Dec quarter of 2024, with cumulative easing of 75 bps in FY25.

Concluding Note:

• The RBI remains focused on price stability while supporting economic growth, with inflation control being a key priority. The central bank continues to adapt its policies to meet domestic economic needs amidst global uncertainties.