RBI Governor Shaktikanta Das announced the MPC Policy
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) announced on June 7 its decision to leave key interest rates unchanged.
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) announced on June 7 its decision to leave key interest rates unchanged, marking the eighth consecutive policy review without a rate adjustment. The decision, made by a majority vote, reflects the committee's cautious stance due to ongoing inflationary pressures.
Key Points:
- Unchanged Rates: The repo rate, standing at 6.5%, remains untouched, signalling the RBI's commitment to maintaining stability in the face of persistent inflation.
- Inflation Challenges: Despite efforts to curb inflation within the targeted range of 2-6%, India's retail inflation remained stubbornly high at 4.83% in April, posing challenges for the central bank.
- Projected Inflation: The RBI forecasts inflation for 2024-25 at 4.5%, with quarterly projections of 4.9% (Q1), 3.8% (Q2), 4.6% (Q3), and 4.5% (Q4).
- Long-Term Targets: The RBI aims to align inflation with the 4% target over the long term, emphasizing sustainability in achieving desired levels.
- Economic Outlook: The policy review comes amid various economic factors, including slower deposit growth compared to credit growth in banks, leading to asset-liability mismatches.
- External Influences: Global factors such as potential escalations in geopolitical tensions and adverse weather conditions, like a possible heatwave, could further complicate inflation management.
- GDP Forecast: Despite inflationary concerns, the RBI raised India's real GDP forecast for FY25 to 7.20%, citing improving rural and urban demand conditions bolstered by favourable monsoon predictions.
- GDP Growth Forecast: RBI's Monetary Policy Committee forecasts India's real GDP to grow at 7.2% in FY25, with quarterly projections of 7.2%, 7.3%, 7.2%, and 7.3% for Q1, Q2, Q3, and Q4 respectively, showing an upward revision from the previous forecasts.
- Policy Continuity: The committee's decision underscores the need for continued fiscal discipline by the newly formed government, following the recent Lok Sabha elections.
Conclusion:
With inflation persisting beyond the RBI's target of 4%, the MPC's decision to maintain the status quo on interest rates reflects a cautious approach aimed at balancing economic stability with growth objectives. The central bank's emphasis on sustainability in inflation management underscores its commitment to long-term economic resilience amidst evolving domestic and global challenges.
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