Reserve Bank of India (RBI) Governor Shaktikanta Das delivers the Monetary Policy statement, Friday, Dec. 6, 2024.
| Photo Credit: PTI

The Reserve Bank of India raised India’s Consumer Price Inflation outlook for 2024-25 to 4.8% from 4.5%, with Q3 at 5.7% and Q4 at 4.5%. Going into FY 2025-26, the RBI projected Q1 inflation at 4.6% and Q2 at 4%.

Inflation increased sharply in September and October, led by an unanticipated increase in food prices. Core inflation, though at subdued levels, also registered a pick-up in October, the Reserve Bank of India Governor Shaktikanta Das said on Friday (December 6, 2024).

In the near term, despite some softening, lingering food price pressures are likely to keep headline inflation elevated in the third quarter — October to December, Mr. Das said. The near term inflation and growth outcomes in India have turned somewhat adverse since the last Monetary Policy Review, Mr. Das noted.

Manufacturing and services firms surveyed by the Reserve Bank point to hardening input costs and hikes in selling prices in Q4 of 2024-25 — January to March.

The RBI’s Monetary Policy Committee (MPC) on Friday (December 6, 2024) decided to keep the policy repo rate unchanged at 6.50% for the 11th consecutive time.

Shaktikanta Das, Governor, Reserve Bank of India. File.
| Photo Credit: Thulasi Kakkat

 The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday (December 6, 2024) decided to keep the policy repo rate unchanged at 6.50% for the 11th consecutive time.

The last time the MPC had increased rates to 6.5% was in February 2023. 

The MPC also decided unanimously to continue with the neutral stance and to remain unambiguously focused on a durable alignment to the 4% target of inflation while supporting growth.

The MPC took note of the recent slowdown in growth momentum which translates into a downward revision of the growth forecast of this year. The second half of this year and next year growth outlook remains resilient but warrants monitoring.

Governor Shaktikanta Das announced the central bank’s decision on policy rates in the RBI’s concluding day Monetary Policy Committee (MPC) meeting on Friday. “India’s economy has been growing healthily in the last 3 years. It is always the effort of the RBI and the MPC to follow the mandate in letter and spirit,” he said while making the announcement.

Monetary policy is important because it affects the life of people, each and every segment of the economy, howsoever small or big, from vegetable vendors to middle class to corporates, farmers, and industry and business and it has wide ranging implications

“Our effort is to follow the flexible inflation targeting framework as provided in the RBI Act and the RBI’s mandate is to maintain price stability while supporting growth. Price stability is important for every segment of the economy. At the same time, growth is also very important.”

Stating that the last mile of disinflation is turning out to be prolonged and arduous for both emerging and developed economies, he said in India, notwithstanding the recent aberration in growth and inflation trajectories, the economy continues its journey on a sustained and balanced path towards progress.

 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.

Image used for representative purpose only.
| Photo Credit: Reuters

The rupee witnessed range-bound trading in initial deals against the U.S. dollar on Thursday (August 8, 2024), ahead of the Reserve Bank of India’s monetary policy outcome.

Market participants are awaiting cues from the central bank’s observation of recent events and its observations on food inflation which continues to remain high.

Foreign fund outflows and gains in Brent crude price further dented investor sentiments.

At the interbank foreign exchange, the rupee opened at 83.94 against the greenback, then touched 83.93, registering a rise of 2 paise over its previous closing price.

On Wednesday, the rupee consolidated in a narrow range and settled for the day lower by 3 paise at 83.95 against U.S. dollar.

“Indian rupee was again sold off as it closed at 83.95 on Wednesday very close to the psychologically important level of 84.00. Market will await the monetary policy before checking on RBI allowing the rupee to fall further as it protects 83.96,” said Anil Kumar Bhansali, Head of Treasury and Executive Director Finrex Treasury Advisors LLP.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.13% lower at 103.06.

Brent crude, the global oil benchmark, advanced 0.43% to USD 78.67 per barrel.

The Indian Central Bank is set to hold rates for the ninth consecutive month but investors were hoping for a more dovish tone. Though markets still do not expect a cut in the next meeting in October, the first cut may come in February-2025.

“The market awaits the central bank’s observation of recent events and what it is says on food inflation which continues to remain higher at around 7% with vegetable inflation around 30%,” Mr. Bhansali said.

The Reserve Bank’s rate-setting panel started its three-day deliberations for the next set of bi-monthly monetary policy on Tuesday amid expectations of no change in benchmark interest rate in view of concerns on inflation and economic growth remaining steady.

The decision of the RBI Governor Shaktikanta Das-headed six-member Monetary Policy Committee (MPC) will be announced later on the day.

On the domestic equity market front, Sensex declined 251.76 points, or 0.32%, to 79,216.25 points. The Nifty fell 83.80 points, or 0.34%, to 24,213.70 points.

Foreign institutional investors (FIIs) were net sellers in the capital markets on Wednesday as they offloaded shares worth ₹3,314.76 crore, according to exchange data.