The Reserve Bank of India (RBI) concluded its Monetary Policy Committee (MPC) meeting on Thursday, maintaining the benchmark interest rates at 6.5% by a 4:2 majority. This decision marks the ninth consecutive instance of unchanged rates, reflecting the central bank’s cautious approach to monetary policy in the face of economic challenges.
Key Decisions and Projections
Unchanged Repo Rate
The MPC’s decision to keep the repo rate steady at 6.5% demonstrates a continuation of its previous stance. This rate has remained unaltered since February 2023, when the last increase was implemented. The committee’s split decision, with four members voting for the status quo and two opposing, highlights the complexity of the current economic landscape.
Other Rates and Projections
RBI Governor Shaktikanta Das confirmed that the Marginal Standing Facility (MSF) and Standard Deposit Facility (SDF) rates will remain at 6.75% and 6.25% respectively. These rates play crucial roles in the broader monetary framework, influencing liquidity and lending practices in the financial system.
The MPC also provided key economic projections:
- Real GDP growth for the fiscal year 2025-26 is projected at 7.2%
- Inflation forecast is maintained at 4.5%
Quarterly GDP Growth Estimates
The committee offered a breakdown of quarterly GDP growth estimates:
- Q1FY25: 7.1%
- Q2FY25: 7.2%
- Q3FY25: 7.3%
- Q4FY25: 7.2%
These projections suggest a steady and optimistic outlook for economic growth throughout the fiscal year.
Economic Outlook and Considerations
Inflation Concerns
Governor Das highlighted that while headline inflation is expected to moderate due to a favorable base effect in the near term, this trend may reverse in Q3. This cautionary note underscores the MPC’s vigilant approach to inflationary pressures.
The recent inflation data shows a concerning trend:
- June inflation rose to 5.08%, significantly above the RBI’s target
- High food prices were a major contributor to this increase
- While inflation may ease in July and August due to statistical factors, it’s anticipated to rise again in September
Domestic Growth and Consumption
The governor emphasized that domestic growth remains resilient, supported by steady urban consumption. This observation suggests that despite inflationary pressures, certain sectors of the economy continue to show strength.
MPC’s Policy Stance and Focus
Consistency in Monetary Policy
The MPC determined that it is crucial for monetary policy to remain consistent while closely monitoring inflation. This stance reflects a balance between supporting growth and controlling inflation.
Primary Focus on Inflation
The committee reiterated its commitment to maintaining a primary focus on inflation. This approach is viewed as essential to support sustained economic growth in the long term.
MPC Composition and Previous Decisions
The Monetary Policy Committee includes several key members:
- Shaktikanta Das (Governor)
- Ashima Goyal
- Jayanth R Varma
- Rajiv Ranjan
- Shashanka Bhide
- Michael Debabrata Patra
The committee’s decision to maintain rates unchanged aligns with its actions in the previous MPC meeting held from June 5-7, 2024, where it also kept the benchmark interest rates at 6.5%.
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