RBI MPC Meeting: Central Bank Keeps Repo Rate Unchanged At 6.5%; FY25 GDP Growth Pegged At 7%

RBI Repo Rate: This marks the sixth consecutive time that the central bank has chosen to keep the rate steady; Real GDP growth is projected in FY24-25 at 7 per cent

The Reserve Bank of India's (RBI) monetary policy committee (MPC), led by Governor Shaktikanta Das, in a decision announced on Friday, opted to maintain the repo rate unchanged at 6.5 per cent. This marks the sixth consecutive time that the central bank has chosen to keep the rate steady. Under Governor Das' leadership, the RBI MPC has held the repo rate unchanged at 6.5 per cent throughout the past five meetings, signaling a deliberate pause on rate adjustments. This is the first bi-monthly policy following presentation of Interim Budget 2024-25 last week.

During his address, Das said the standing deposit facility (SDF) at 6.25 per cent. The governor said that the MPC, which voted by 5 votes to 1, remain focused on withdrawal of accommodation that ensures inflation aligns progressively to the target of 4-6 per cent, while supporting growth.  

He said industrial activity shows promising signs of growth with the manufacturing sector leading the charge. Corporates in manufacturing are reporting encouraging early results, bolstered by improved profit margins. The Purchasing Managers' Index (PMI) for manufacturing indicates expansion, signaling a positive outlook for future activity. In parallel, the services sector anticipates sustained strength driven by robust domestic demand and stable global prospects. January 2024 witnessed a notable increase in the PMI services, indicating continued expansion, the governor pointed out.

Furthermore, the construction sector is poised for growth, propelled by buoyant demand for residential housing and increased government capital expenditure. The combination of these factors suggests a promising outlook for economic activity in the near term.

GDP

Real GDP growth is projected in FY24-25 at 7 per cent, Das said, with Q1 at 7.2 per cent; Q2 at 6.8 per cent; Q3 at 7.0 per cent; and Q4 at 6.9 per cent. "The risks are evenly balanced," he noted.

CPI inflation

In December, the Consumer Price-based Inflation (CPI) stood at 5.69 per cent. Das said that healdine inflation is projected at 5.4 for the current year, while for next fiscal year CPI inflation is projected at 4.5 per cent. According to the governor, the projection of headline inflation by the MPC has been kept unchanged at 4.5 per cent, with Q1 at 5 per cent (5.2 per cent), Q2 at 4 per cent, Q3 at 4.6 per cent (4.7 earlier), while 4.7 per cent at Q4.

MPC decision

The decision reflects the central bank's stance amidst various economic considerations, including inflationary pressures, liquidity management, and economic growth projections.

The Monetary Policy Committee (MPC) has acknowledged the resilience of domestic economic activity, foreseeing sustained support from investment demand, positive business sentiments, and improving consumer confidence. Despite these favorable indicators, challenges persist, primarily from recurrent food price shocks that hinder the pace of disinflation, although core inflation remains moderate. Additionally, geopolitical tensions, disruptions in supply chains, and fluctuations in international financial markets and commodity prices pose significant inflationary risks. The impacts of previous policy repo rate increases are still unfolding throughout the economy.

During the recent MPC meeting, attended by Dr. Shashanka Bhide, Dr. Ashima Goyal, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra, and Shri Shaktikanta Das, there was a unanimous decision to maintain focus on withdrawing accommodation measures to gradually align inflation with the target while sustaining growth. However, Prof. Jayanth R. Varma advocated for a shift in stance towards neutrality.

The MPC's next meeting is scheduled from April 3 to 5, 2024.