The Reserve Bank of India (RBI) held its 51st monetary policy meeting in October 2024, announcing its decision to keep the policy repo rate unchanged at 6.50%.
Governor Shaktikanta Das revealed that the central bank has shifted its monetary policy stance to neutral from its previous stance of “withdrawal of accommodation,” emphasizing that inflation control remains the top priority for the central bank.
- Policy Repo Rate: 6.50%
- Standing Deposit Facility (SDF) Rate: 6.25%
- Marginal Standing Facility (MSF) Rate: 6.75%
- Reverse Repo Rate: 3.35%
The RBI Governor highlighted that despite improvements in global growth, significant downside risks persist due to geopolitical conflicts, supply chain disruptions, and volatile crude oil prices. The RBI will continue to focus on aligning inflation with its target while supporting the country’s growth prospects.
Inflation Remains the Core Focus
Inflation has been a major concern for the RBI throughout 2024. Despite a sharp drop in headline inflation to 3.6% and 3.7% in July and August, respectively, the central bank expects inflation to rise again in September due to base effects and rising food prices.
- July 2024 Inflation: 3.6%
- August 2024 Inflation: 3.7%
- Projected Inflation for FY25: 4.5%
According to the RBI’s assessment, inflationary pressures will likely ease by the fourth quarter of FY25, aided by good kharif crop arrivals and a strong rabi season. The central bank also noted the importance of monitoring rising commodity prices, especially metals and crude oil, which could increase inflation.
Crude Oil Prices and Global Outlook
Governor Shaktikanta Das mentioned that global crude oil prices have shown some moderation, falling from $93 per barrel in mid-April to $73 per barrel by the end of September. However, geopolitical tensions and supply constraints from OPEC+ continue to pose risks to oil prices.
The RBI has projected that if crude prices rise by 10% above baseline estimates, domestic inflation could increase by 30 basis points, with GDP growth slowing by 15 basis points.
While global inflation is softening, geopolitical risks, financial market volatility, and elevated public debt remain concerns for the world economy. Nevertheless, the RBI noted that world trade is showing signs of improvement, with services activity holding up even as manufacturing experiences a slowdown.
Growth Outlook: Resilient Domestic Economy
The RBI remains optimistic about India’s economic growth, projecting a GDP growth rate of 7.2% for FY25. Shaktikanta Das pointed to strong domestic demand, improved industrial performance, and a pick-up in investment as key factors supporting the economy.
- Q1 FY25 GDP Growth: 6.7%
- Q2 FY25 GDP Growth Forecast: 7%
- Q3 FY25 GDP Growth Forecast: 7.4%
- Q4 FY25 GDP Growth Forecast: 7.4%
The RBI Governor also highlighted the government’s focus on infrastructure spending, which continues to drive growth in the investment sector. Healthy kharif sowing, robust bank credit growth, and strong corporate balance sheets contribute to the positive outlook.
Despite the resilience of domestic drivers, uncertainties in the global environment remain, especially due to geopolitical tensions and global financial volatility.
Key Highlights from the RBI Monetary Policy Meeting
- The repo rate remains unchanged at 6.50%, with a shift to a neutral policy stance.
- Inflation is projected at 4.5% for FY25, with a Q3 forecast of 4.8%.
- GDP growth for FY25 is projected at 7.2%, with steady growth expected across the fiscal quarters.
- Crude oil price volatility remains a concern, with geopolitical tensions and supply constraints potentially pushing prices higher.
- The RBI remains committed to monitoring inflation and maintaining price stability while supporting growth.
How the Six MPC Members Voted
During the three-day meeting, the six members of the Monetary Policy Committee (MPC) voted as follows:
- Five members: Governor Shaktikanta Das, Saugata Bhattacharya, Professor Ram Singh, Dr. Rajiv Ranjan, and Dr. Michael Debabrata Patra voted to keep the repo rate unchanged at 6.50%.
- One member, Dr. Nagesh Kumar, voted to reduce the rate by 25 basis points.
All six members voted to shift the policy stance to neutral, prioritizing a durable alignment of inflation with the target while also supporting economic growth.
Impact on Markets and Currency
Following the RBI’s announcements, Indian equity markets surged, with the Nifty 50 index reaching an intra-day high of 25,190 points, up by 177 points as the Governor delivered his speech. The Indian rupee (INR) remained the least volatile among emerging market currencies, reflecting India’s strong macroeconomic fundamentals.
- Forex reserves: India’s forex reserves have crossed the $700 billion mark, providing a solid buffer against external shocks.
- Current Account Deficit (CAD): India’s CAD widened to 1.1% of GDP in Q1 FY25, but strong services exports and higher FDI flows are expected to stabilise the deficit.
Conclusion
The RBI’s decision to maintain the status quo on the repo rate reflects its cautious approach to managing inflation while keeping a steady hand on economic growth. With inflationary pressures expected to persist in the short term, the central bank has chosen to adopt a neutral stance, signaling that it is prepared to adjust its policies in response to evolving geopolitical and economic conditions.
While the global environment remains volatile, India’s domestic economy is showing resilience, supported by strong consumption and investment trends. The RBI’s focus on inflation control, alongside its support for growth, will be crucial in navigating the challenges ahead.
Disclaimer
This article is for informational purposes only and does not constitute financial advice. Economic conditions and market dynamics are subject to change, and readers are advised to consult with financial experts before making any investment decisions.