Key Highlights of RBI’s Latest Monetary Policy:
- Repo rate left unchanged at 6.50% by 5-1 majority MPC vote
- RBI maintains real GDP growth forecast at 7% for FY25
- Projects average CPI inflation at 4.5% in FY25 assuming normal monsoon conditions
- Signals comfort with stability exhibited by rupee recently on the back of India’s strong macroeconomic fundamentals
- Additional measures announced covering areas such as:
- Revised regulatory framework for electronic trading platforms
- Permission for hedging gold price risk in IFSC over-the-counter market
- Mandating key fact statement for all retail and MSME loans
- Steps to enhance security of Aadhaar-enabled digital payments
- Principle-based guidelines for multi-factor authentication of digital payments
- Enabling offline, targeted payments in CBDC pilot
Reserve Bank of India (RBI) Governor Shaktikanta Das today indicated that the central bank may have reached the end of the current rate hike cycle after leaving the key policy rate unchanged in a split decision following the Monetary Policy Committee meeting. However, he stressed that policymakers need to remain vigilant on inflation trends going forward.
The Monetary Policy Committee (MPC), headed by the RBI Governor, voted 5-1 to keep the policy repo rate steady at 6.50%. Consequently, the standing deposit facility rate stays at 6.25% and the marginal standing facility rate at 6.75%.
Elaborating on the rationale behind the decision, Governor Das highlighted that inflation has seen significant moderation from the highs of summer 2022, aided by proactive supply-side measures by the government and calibrated rate hikes cumulatively adding up to 250 basis points undertaken by the RBI so far.
“Over the last two years, monetary policy has prioritized inflation over growth, undertaking this calibrated increase in policy repo rate by 250 basis points along with withdrawal of stimulus measures,” the Governor remarked.
However, Das also sounded a note of caution that the ongoing disinflation trajectory could potentially be interrupted by recurring food price shocks, which may risk leading to de-anchoring of inflation expectations if they become more broad-based.
“Monetary policy, in the midst of these lingering uncertainties, has to remain vigilant to ensure that we successfully navigate the last mile of disinflation,” he firmly asserted.
On growth, the Governor painted an optimistic picture underpinned by strong domestic demand, government’s capital spending push across infrastructure sectors, gradual yet steady revival in private corporate investment and buoyant rural consumption.
The RBI retained its real GDP growth forecast for FY25 at 7% in the policy review, while projecting average headline CPI inflation to moderate further to 4.5% during the next fiscal year, conditional on assumptions of a normal monsoon.
Significantly, despite higher inflation projections for the near term, the monetary policy statement steered clear of any explicit forward guidance on the future course of rate actions, unlike previous policies that gave definitive stance.
Governor Das clarified that the ongoing policy stance in terms of withdrawal of accommodation should be seen in the context of lagging transmission of past actions still underway and inflation remaining above the 4% target.
“Much has been achieved, but we must remain vigilant. Policymaking during these uncertain times has to be based on continuous assessment of incoming data and implications for the outlook,” he summed up.
Thus, while clearly hinting at a pause in the current tightening cycle for now in light of the positive developments on inflation and growth, Governor Das refrained from any definitive guidance on future rate moves, preferring to keep all options open contingent on the evolving outlook.
With inflation still expected to remain uncomfortably high over the coming quarters, another rate hike cannot be completely ruled out if price pressures re-accelerate rapidly due to adverse supply shocks. However, the latest policy stance adjustment and optimistic growth-inflation assessment indicates RBI’s preference to allow more time for cumulative past actions spanning 250 basis points hike in repo rate to work their way through the economy.
Importantly, today’s policy pronouncements signal the central bank’s confidence in the inherent resilience shown by the Indian economy in adeptly navigating global shocks and domestic challenges over the past year. As the Governor stressed, preserving hard-won macroeconomic stability and building further strength to sustain high growth for the long haul remains key priorities looking ahead.
Above all, maintaining public credibility and steadfastly anchoring inflation expectations close to the 4% target on a durable basis should continue to guide RBI’s policy priorities going forward, while supporting growth.