RBI Monetary Policy updates | Policy repo rate unchanged at 6.5%; real GDP growth for FY25 projected at 7%

The MPC also noted that domestic economic activity remains resilient, backed by strong investment demand and upbeat business and consumer sentiments. Headline inflation has come off the December peak; however, food price pressures have been interrupting the ongoing disinflation process, posing challenges for the final descent of inflation to the target. Unpredictable supply side shocks from adverse climate events and their impact on agricultural production as also geo-political tensions and spillovers to trade and commodity markets add uncertainties to the outlook, Mr Das said. 

Going ahead, food price uncertainties would continue to weigh on the inflation outlook. An expected record rabi wheat production in 2023-24, however, will help contain cereal prices, the RBI said while announcing the Monetary Policy’s decision on maintaining the CPI inflation rate.

Early indications of a normal monsoon also augur well for the kharif season. On the other hand, the increasing incidence of climate shocks remains a key upside risk to food prices. 

Low reservoir levels, especially in the southern States and outlook of above normal temperatures during April-June, also pose concern. Tight demand supply conditions in certain pulses and the prices of key vegetables need close monitoring. 

Fuel price deflation is likely to deepen in the near term following the recent cut in LPG prices. After witnessing sustained moderation, cost push pressures faced by firms are showing upward bias. The recent firming up of international crude oil prices warrants close monitoring. 

Geo-political tensions and volatility in financial markets also pose risks to the inflation outlook, RBI added. 

The prospects of fixed investment remain bright with business optimism, healthy corporate and bank balance sheets, robust government capital expenditure and signs of upturn in the private capex cycle, the RBI said in a press release announcing the decision of the Monetary Policy Committee.

Headwinds from geopolitical tensions, volatility in international financial markets, geoeconomic fragmentation, rising Red Sea disruptions, and extreme weather events, however, pose risks to the outlook, it added.

Looking ahead, an expected normal south-west monsoon should support agricultural activity. Manufacturing is expected to maintain its momentum on the back of sustained profitability, the RBI said while announcing the bi-monthly Monetary Policy decision for keeping the GDP growth rate for FY25 at 7%.

Services activity is likely to grow above the pre-pandemic trend. Private consumption should gain steam with further pick-up in rural activity and steady urban demand. A rise in discretionary spending expected by urban households, as per the Reserve Bank’s consumer survey, and improving income levels augur well for the strengthening of private consumption, it said in a press release.

India’s foreign exchange reserves reached an all-time high of $645.6 billion as of March 29, 2024, Governor Das said. 

He cited latest data on various external vulnerability indicators which suggested improved resilience of India’s external sector. 

“We remain confident of meeting our external financing requirements comfortably,” he added. 

Growth has continued to sustain its momentum, surpassing all projections. Headline inflation has eased to 5.1% during both January and February, and this has come down to 5.1% in these two months from the earlier peak of 5.7% in the month of December, RBI Governor said. 

Looking ahead, robust growth prospects provide the policy space to remain focused on inflation and ensure its descent to the target of 4%, he adds.

Governor Das, announcing the Monetary Policy decision, said that CPI inflation for FY25 has been projected at 4.5%. The Committee has maintained its figures from February.

Back in February, CPI inflation was projected at 5.4 per cent for 2023-24 with Q4 at 5.0 per cent.

Food inflation pressures accentuated in February; MPC remains vigilant towards upside risk of inflation, says RBI Governor.

High, persisting food inflation could unhinge anchoring of inflationary expectations, he added. 

The Standing Deposit Facility rate remains at 6.25% and the Marginal Standing Facility rate and Bank Rate remain at 6.75%, RBI Governor Shaktikanta Das said on Monetary Policy decisions.

The Monetary Policy Committee has projected the real GDP growth for FY25 at 7%.

This is also consistent with its announcement made previously in February. 

Robust growth provides space for monetary policy to remain focused on bringing inflation down to its 4% target, RBI Governor Shaktikanta Das said in his statement while announcing the decision of the Monetary Policy Committee.

Monetary policy must remain actively disinflationary at this stage, Mr. Das said.

- Reuters