Source: ET NOW
The Reserve Bank of India (RBI) concluded its fourth bi-monthly Monetary Policy Committee (MPC) meeting of the financial year 2024-25 on October 9, 2024. In a widely anticipated move, the RBI has kept the benchmark repo rate unchanged at 6.5% for the tenth consecutive meeting, citing ongoing inflationary pressures and the need to maintain financial stability amid global uncertainties. However, the central bank has shifted its policy stance from ‘withdrawal of accommodation’ to ‘neutral,’ indicating a potential pivot towards future rate cuts depending on incoming economic data.
Key Highlights from the October 2024 MPC Meeting:
- Repo Rate Unchanged at 6.5%:
The RBI’s decision to maintain the repo rate at 6.5% aligns with market expectations and reflects the central bank’s cautious approach to addressing inflation while sustaining economic growth. The repo rate has been stable at this level since February 2023, following a series of rate hikes aimed at curbing inflationary pressures. - Policy Stance Shift to Neutral:
The RBI has changed its stance to ‘neutral’ from the previous ‘withdrawal of accommodation.’ This change signifies the central bank’s readiness to adjust rates based on future data. While there is no immediate indication of a rate cut, the neutral stance opens up the possibility of monetary easing if inflation remains within the RBI’s comfort zone in the coming months. - Inflation Forecast and Economic Outlook:
The RBI retained its CPI (Consumer Price Index) inflation forecast for FY25 at 4.5%. Despite concerns over rising food prices and geopolitical tensions that could affect crude oil prices, the central bank believes inflation will moderate sequentially by Q4 FY25. However, RBI Governor Shaktikanta Das emphasized the need for vigilance given the unpredictable nature of global commodity prices and adverse weather conditions, which could disrupt the inflation trajectory. - Growth Projections for FY25:
The RBI has retained its real GDP growth forecast for FY25 at 7.2%. The Q2 growth projection has been adjusted slightly downwards to 7% (from 7.2%), while Q3 and Q4 growth estimates have been revised upwards to 7.4% each, highlighting a mixed outlook influenced by global economic uncertainties and domestic economic activity. Governor Das mentioned that the central bank expects a gradual recovery in private investment and continued growth in the services sector. - Impact of Global Factors:
The decision comes amid a challenging global economic environment, characterized by geopolitical tensions, fluctuating oil prices, and a cautious monetary stance adopted by major central banks. Notably, the US Federal Reserve’s recent rate cut has increased expectations of potential rate easing actions by other central banks, putting pressure on the RBI to consider similar measures. - Current Account Deficit and Foreign Investments:
The RBI Governor reported that India’s current account deficit (CAD) widened to 1.1% of GDP in the first quarter of FY25. However, strong services exports and steady Foreign Direct Investment (FDI) inflows are expected to keep the CAD manageable. While external commercial borrowings have moderated, non-resident deposits have seen a positive uptick, indicating confidence in the Indian economy. - Sector-Specific Updates:
The MPC highlighted several issues concerning specific sectors, including the identification of deficiencies in gold loan companies’ operations and the need for corrective actions. Additionally, the RBI announced an increase in the Unified Payment Interface (UPI) transaction limit from ₹2,000 to ₹5,000, enhancing digital payment capabilities.
Market Reactions and Future Outlook:
The RBI’s stance and decision to maintain the repo rate were largely in line with expectations, leading to a muted response in financial markets. Analysts believe that the shift to a neutral stance could be a precursor to a rate-cutting cycle, depending on future inflation data and global economic developments. Lakshmi Iyer, CEO-Investment & Strategy at Kotak Alternate Asset Managers, noted that the policy stance change indicates greater flexibility and optionality for the central bank to take accommodative actions in the months ahead.
With the upcoming MPC meetings scheduled for December and February, the focus will remain on key indicators like inflation trends, economic growth, and global economic conditions. Any significant developments on these fronts could influence the RBI’s future policy decisions.
Final Thoughts:
The October 2024 MPC meeting reflects the RBI’s cautious yet proactive approach to managing inflation and supporting economic growth. While the decision to keep rates unchanged was anticipated, the shift in stance signals potential monetary easing if conditions permit. As the global economic landscape remains volatile, the RBI will continue to assess the situation and adapt its policies to ensure sustainable economic stability.
This meeting marks an important moment for the Indian economy, setting the stage for potential policy shifts in the near future. For stakeholders and market participants, keeping a close watch on inflation data and the global economic environment will be crucial to understanding the RBI’s future moves.
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