RBI Monetary Policy: For the seventh consecutive meeting, the Monetary Policy Committee (MPC) of the Reserve Bank of India maintained the benchmark repo rate at 6.5 percent, as anticipated by the market, with a primary focus on reducing inflation. This decision was made on April 5.
Maintenance of Accommodative Stance
At its initial meeting of Fiscal Year 25, the panel responsible for setting rates maintained its position as withdrawal of accommodation. The majority that made the decisions was 5 to 1. The rate at which the central bank extends short-term loans to banks is known as repo.
The governor of the RBI also declared that the GDP growth estimate for FY25 will remain unchanged. The current fiscal year’s GDP growth estimate of 7% was kept in place. Regarding inflation, the RBI MPC estimates that it would be 4.5% in FY25. The rate-setting panel increased the repo rate by 250 basis points (bps) between May 2022 and February 2023, but it has remained constant since then.
Understanding the Relationship to Percentage Points
One tenth of a percentage point is equal to one basis point. According to a Moneycontrol survey, 21 bankers, investment managers, and economists predicted that the MPC will hold rates one more time, keeping the benchmark repo rate at 6.5 percent.
The majority of responders said they didn’t think the policy position would alter either. Inflation on headlines has decreased recently. Inflation in February remained relatively stable at 5.09 percent, down from 5.1 percent in January.
Key Indicator Drops to 3.3%
The core inflation rate decreased to 3.3%. Core inflation is the portion of inflation that is not related to food or energy. It is a crucial indicator of price patterns that is used to develop policy. However, the overall inflation figure still falls short of the 4 percent objective set by the central bank.
Although CPI inflation has continued to remain within the RBI’s tolerance range of 2 to 6 percent for a sixth consecutive month, it has now exceeded the medium-term target of 4 percent for 53 consecutive months.
RBI Aims for Sustainable 4% Inflation Rate
Governor of the Reserve Bank of India Shaktikanta Das recently stated that although inflation measured by the Consumer Price Index (CPI) was declining, the central bank was still targeting a sustainable 4 percent inflation rate.
“We would like inflation to be durably around 4 percent. It has to be sustainably and durably 4 percent. That will give us greater confidence. Direction is clear, inflation is on a downward trajectory,” Das said in an interview to a private television channel.
Federal Reserve’s Warning
The US Federal Reserve recently reiterated its warning against inflation while maintaining the current key rate levels. According to Emkay Global experts, it is improbable that the Indian central bank will reverse interest rates before the Federal Reserve.
In terms of growth, the last three months of 2023 saw India’s economy expand by 8.4 percent, the quickest rate in 18 months, because to robust manufacturing and building activity. The government’s projected growth rate for 2024 has been updated from 7.3 percent to 7.6 percent.