Reserve Bank of India’s (RBI) Governor Shaktikanta Das on Wednesday is set to announce the outcomes of its bi-monthly Monetary Policy Committee (MPC) meeting.
The repo rate, key lending rate, is likely to be unchanged at 6.5 per cent with focus on withdrawal of accommodation stance.
The MPC was scheduled to meet next on October 7-9 to review the monetary policy and comes at a time when the US Federal Reserve has resorted to an aggressive 50 basis point cut in its policy rates and central banks of some other advanced economies are expected to follow suit. Some experts expect the RBI to start the rate cut cycle as early as December.
Further, earlier this month, the government reconstituted the MPC by appointing economists Ram Singh, Saugata Bhattacharya and Nagesh Kumar to the crucial six-member rate-setting panel for four years.
Meanwhile, RBI governor Shaktikanta Das has resisted any immediate action, linking RBI rate cut to domestic inflation durably settling at the 4% target.
Retail inflation has remained under its medium-term target of 4% for a second straight month through August and analysts don’t expect any significant spike in it in the coming months.
The MPC raised the benchmark interest rate by 250 basis points between May 2022 and February 2023 and has since maintained a pause to keep inflation under control.
Key takeaways from the August meeting
- Repo Rate: Maintained with a 4:2 majority to ensure inflation aligns with targets while supporting growth.
- SDF & MSF Rates: SDF rate at 6.25%, MSF and bank rates at 6.75%.
- Inflation Forecast: FY25 forecast at 4.5%, FY26 at 4.4%; quarterly forecasts for FY25 are 4.4%, 4.7%, and 4.3% for Q2, Q3, and Q4.
- Food Inflation: A key concern, with the need for vigilance to prevent spillover effects.
- GDP Growth: FY25 GDP forecast remains at 7.2%, with projections of 7.2-7.3% for each quarter.
- UPI Expansion: Introduction of “Delegated Payments” expected to boost UPI usage.
- Cheque Clearance: Proposal to reduce cheque clearance time to a few hours.
- Forex Reserves: Reached a high of $675 billion as of August 2, 2024.
- Current Account Deficit: Reduced to 0.7% of GDP in FY24, down from 2% in FY23.
- Deposits: Increased non-resident deposits and moderated external commercial borrowings in April-June FY25.
