The decision taken at the RBI Governor Shaktikanta Das headed six-member Monetary Policy Committee will be announced on Friday (December 6, 2024)
| Photo Credit: Reuters

Reserve Bank’s high level panel on Wednesday (December 4, 2024) started deliberations on the bi-monthly monetary policy amid expectations of status quo on interest rate as the retail inflation is above the upper tolerance level of the central bank.

The decision taken at the RBI Governor Shaktikanta Das headed six-member Monetary Policy Committee (MPC) will be announced on Friday (December 6).

Mr. Das is chairing the last MPC meeting of his current term which ends on December 10.

The government has tasked the RBI to ensure consumer price index (CPI) based inflation remains at 4% with a margin of 2% on the either side.

The Reserve Bank has kept the repo or short-term lending rate unchanged at 6.5% since February 2023 and experts think some easing could only be possible in 2025.

“We do not foresee rate cut during the current FY… First rate cut and further change in stance likely in April 2025,” said a SBI research report.

The report further said it is better that the second quarter growth numbers “do not prompt a knee jerk reaction” in terms of monetary impulse like rate cut as headline inflation continues to trade at uncomfortable levels.

India’s economic growth slowed to near two-year low of 5.4% in the July-September quarter of this fiscal due to poor performance of manufacturing and mining sectors. The gross domestic product (GDP) had expanded by 8.1% in the July-September quarter of 2023-24 fiscal.

The central bank last hiked the repo rate to 6.5% in February 2023 and since then it has held the rate at the same level.

The RBI kept the repo rate unchanged in its last bi-monthly review (October) also amid risks from higher food inflation.

On expectations from the MPC, Mandar Pitale, Head Treasury, SBM Bank India, said the RBI may consider to infuse durable liquidity by phased reduction in CRR (25 basis points in 2 phases till the next MPC meeting) to support growth through liquidity injection rather than considering a rate cut. MPC may also consider an option of infusing durable liquidity through OMO purchase.

Atul Monga, CEO and Co-founder of BASIC Home Loan, too expects the RBI to keep the repo rate unchanged with an aim to balance inflation and support economic growth.

“With the repo rate remaining unchanged, housing demand is expected to remain steady, especially in the mid-range and luxury segments, supported by stable interest rates. Both developers and home buyers can benefit from predictability in borrowing costs,” Monga said.

In an off-cycle meeting in May 2022, the MPC raised the policy rate by 40 basis points and it was followed by rate hikes of varying sizes, in the subsequent meetings till February 2023. The repo rate was raised by 250 basis points cumulatively between May 2022 and February 2023.

The MPC members are: Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi; Saugata Bhattacharya, Economist; Ram Singh, Director, Delhi School of Economics; Rajiv Ranjan, Executive Director, RBI; Michael Debabrata Patra, Deputy Governor, RBI; and Shaktikanta Das, Governor, RBI.

The RBI cited the favourable agricultural crop outlook which could ease food inflation pressures, subject to weather risks. File photo
| Photo Credit: REUTERS

The Reserve Bank of India (RBI) has projected India’s real GDP growth for FY25 at 7.2 per cent, while CPI inflation for the fiscal year is expected to moderate to 4.5 per cent, post Monetary Policy Committee (MPC) meeting on Wednesday (October 9, 2024).

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Mr. Das said, “Real GDP growth for 2024-25 is projected at 7.2 per cent. With Q2 at 7 per cent, Q3 at 7.4 per cent and Q4 7.4 per cent. Real GDP growth for Q1 of next financial year that is 2025-26 is projected at 7.3 per cent and the risks are evenly balanced.

According to RBI Governor Shaktikanta Das, growth for the fiscal year will be supported by robust quarterly performances.

However, Inflation in the third quarter is forecasted a little higher at 4.8 per cent, with further moderation anticipated in the fourth quarter when the kharif harvest comes.

However, RBI cautioned that the agricultural output remains susceptible to weather-related shocks, which could influence inflationary trends.

In contrast of India’s Gross Domestic Product (GDP) growth for the first quarter of FY25, Mr. Das said, “Real GDP grew by 6.7 per cent in the first quarter of this financial year, that is, 2024-2025, and this was led by a revival in private consumption and improvement in investment. The share of investment in GDP reached its highest level since 2012-2013. Government expenditure, on the other hand, contracted during the first quarter.”

“On the supply side, gross value added, that is, GVA, expanded by 6.8 per cent, surpassing the GDP growth, aided by strong industrial and services sector activities. High-frequency indicators available so far suggest that domestic economic activity continues to be steady,” Mr. Das added.

On the liquidity front, surplus conditions prevailed in August, September, and early October, though liquidity levels shifted back in late September. However, the agriculture and services sectors remained strong, and government consumption showed signs of improvement. Private investment intentions are also improving, reflecting growing confidence in the economy. Mr. Das said, “MPC noted that currently, the macroeconomic parameters of inflation and growth are well balanced.