RBI monetary policy: On expected lines, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) maintained a status quo on the repo rate and poly stance on Friday, June 7. The six-member committee of the central bank, with a majority of 4:2, decided to keep the benchmark repo rate unchanged at 6.5 per cent for the eighth consecutive time. The MPC also decided to continue its stance of ‘withdrawal of accommodation’.
RBI Governor Shaktikanta Das, in his monetary policy speech, pointed out that inflation is easing and economic growth is firming, but food inflation remains a concern.
Here are five key highlights from the RBI MPC outcome:
RBI MPC left benchmark policy rates and stance unchanged after a detailed assessment of the evolving macroeconomic and financial developments and the outlook.
The policy repo rate remains unchanged at 6.50 per cent, while the standing deposit facility (SDF) rate remains at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
The MPC, by a majority of 4 out of 6 members, decided to remain focused on the "withdrawal of accommodation".
Governor Das said CPI headline inflation softened further during March-April, but persisting food inflation offset the gains of disinflation in core and the fuel groups.
"Core inflation softened for the 11th consecutive month since June 2023. Services inflation moderated to a historic low, and goods inflation remained contained," said Das.
Food inflation pressures could be somewhat relieved by the expectations of an above-normal monsoon, which bodes well for the kharif season.
Assuming a normal monsoon, Governor Das projected CPI inflation for FY25 at 4.5 per cent, with Q1 at 4.9 per cent, Q2 at 3.8 per cent, Q3 at 4.6 per cent, and Q4 at 4.5 per cent.
RBI raised its GDP growth forecast for FY25 to 7.2 per cent from 7 per cent earlier.
Governor Das projected real GDP growth for FY25 at 7.2 per cent with Q1 at 7.3 per cent, Q2 at 7.2 per cent, Q3 at 7.3 per cent, and Q4 at 7.2 per cent, pinning hopes on healthy rural and urban consumption due to forecast of the above-normal monsoon and buoyancy in services activity.
"The forecast of above normal south-west monsoon by the India Meteorological Department (IMD) is expected to boost kharif production and replenish the reservoir levels. Strengthening agricultural sector activity is expected to boost rural consumption," said Das.
"On the other hand, sustained buoyancy in services activity should continue to support urban consumption. The healthy balance sheets of banks and corporates, the government’s continued thrust on capex, high capacity utilisation, and business optimism augur well for investment activity. External demand should get a fillip from improving prospects of global trade," Das said.
Das said while the RBI keeps a watch on the impact of monetary policy in advanced economies, the central will act on the domestic growth-inflation conditions and the outlook
"There is a view that in matters of monetary policy, the Reserve Bank is guided by the principle of ‘follow the Fed’. While we do keep a watch on whether clouds are building up or clearing out on the distant horizon, we play the game according to the local weather and pitch conditions. In other words, while we do consider the impact of monetary policy in advanced economies on Indian markets, our actions are primarily determined by domestic growth-inflation conditions and the outlook.," said Das.
Governor Das pointed out that the Indian banking system remained sound and resilient, backed by improved asset quality, enhanced provisioning for bad loans, sustained capital adequacy and a rise in profitability. The non-banking financial companies (NBFCs) also displayed strong financials in line with the banking sector.
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