Overview of Recent Monetary Policy Decision by RBI's MPC

Image depicting RBI's decision to maintain unchanged policy rates, reflecting recent monetary policy decisions by the RBI's MPC
Overview of Recent Monetary Policy Decision by RBI's MPC

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) convened recently to deliberate on key policy decisions. The committee, chaired by RBI Governor Shaktikanta Das, opted to maintain the repo rate at 6.5 percent and uphold the policy stance of 'withdrawal of accommodation' in a majority 5:1 voting outcome.

Reasons for Unchanged Rates:

  • Economic Outlook: Despite sector-specific challenges, the overall economic outlook remains optimistic. While inflation has seen a general moderation, persistent food inflation remains a concern. However, the presence of benign core inflation is reassuring, indicating non-inflationary growth.
  • Inflation Concerns: Governor Das highlighted the ongoing uncertainties in food prices, stressing the need for continued vigilance against inflationary pressures that could disrupt the disinflation trajectory. The aim is to align Consumer Price Index (CPI) inflation with the target consistently.
  • GDP Growth Forecast: The RBI retained its GDP growth forecast for FY25 at 7 percent, with projections indicating growth rates across quarters. However, geopolitical tensions, financial market volatility, and geo-economic uncertainties pose risks to this outlook.

Inflation Forecast:

The RBI projects retail inflation at 4.5 percent for fiscal 2024-25, with quarterly estimates indicating fluctuations. Adverse climate events and sustained inflation in non-perishable food items like pulses and spices contribute to potential upside risks.

Impact on Lending and Deposit Rates:

Lending rates tied to the repo rate are expected to remain stable, offering relief to borrowers by maintaining equated monthly installments (EMIs). However, competitive pressures may lead to upward adjustments in deposit rates in certain segments.

Additional Insights:

  • The repo rate, currently at 6.5 percent, marks its highest level since August 2018, reflecting the RBI's efforts to combat inflation.
  • Since May 2022, the RBI has raised the repo rate by 250 basis points in its anti-inflationary measures.
  • Retail inflation, as measured by the Consumer Price Index (CPI), is exhibiting signs of moderation but remains above the RBI's upper tolerance level of 6 percent.
  • The MPC, established in 1998, comprises six members and convenes at least four times a year. It is tasked with formulating monetary policy to maintain price stability while fostering economic growth. The committee includes the RBI Governor, Deputy Governor, one RBI Board nominee, and three external members appointed by the Government of India. Decisions are made through majority voting.

These insights provide a comprehensive understanding of the recent monetary policy decisions by the RBI's MPC, emphasizing the balance between inflation management and economic growth.

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