RBI MPC meeting: Reserve Bank of India’s Monetary Policy Committee (MPC) decided to keep the key on Friday. Repo rate No change at 6.5% by a 4:2 majority. The decision to keep the repo rate unchanged comes at a time when Consumer Price Index (CPI) inflation is still above the RBI’s comfort band of 2-6%. On the other hand, with Q2 FY25 GDP data coming in at a disappointing 5.4%, all eyes are on the central bank to support growth.
While most economists and market experts did not expect the RBI to cut the repo rate. Cash reserve ratio (CRR) reduction was expected. RBI announced a reduction in CRR by 50 basis points from 4.5% to 4% in two tranches. RBI also revised downwards. GDP growth forecast Revised from 7.2% to 6.6% for FY25 and above CPI inflation Estimates range from 4.5% to 4.8%.
Why did RBI not change the repo rate?
What was the justification for the RBI’s policy of keeping the repo rate unchanged? What are the key points from the RBI Governor? Shakti Kanta DasStatement after the MPC meeting? Let’s take a look:
According to Das, “the anti-inflationary monetary policy stance of the Reserve Bank has been a major factor in bringing about significant disinflation.”
- The economy continues its journey on a steady and balanced path towards growth. In the midst of a restructuring of the global economy, India is well-positioned to capitalize on emerging trends as it embarks on a journey of transformation.
- The MPC noted the recent slowdown in growth, which translates into a downward revision in the growth forecast for the current year. Moving into the second half of this year and into next year, the MPC warrants flexible, but close monitoring of the growth outlook.
- High inflation reduces disposable income in the hands of consumers and reduces private consumption, which negatively affects real gross domestic product (GDP) growth. Increasing incidence of adverse weather events, increasing geopolitical uncertainty and financial market volatility pose downside risks to inflation.
- Near-term inflation and growth outcomes in India have turned somewhat negative since the October policy. The medium-term projection on inflation suggests further convergence with target, while growth is expected to accelerate.
- Price stability is essential for sustainable growth. On the other hand, a slowdown in growth – if it persists beyond a point – may require policy support.
“Going forward, as food price shocks subside, headline inflation is likely to ease and be in line with our estimates. For now, the data coming in to confirm the decline in inflation. It is important to draw on the flexibility provided by a neutral stance to wait and monitor them,” he said.
The RBI governor emphasized that despite recent hikes, the gains made so far in the broad direction of disinflation need to be preserved.
“At the same time, the pace of development and emerging perspectives also need to be closely monitored. At this critical juncture, prudence and pragmatism require us to be dynamically aware of all the complexities and implications of the evolving situation. A standstill in monetary policy has thus become appropriate and necessary at this MPC meeting, he added.