Indian central bank holds repo rate at 6.50%, shifts stance to neutral

This decision comes as the MPC remains focused on achieving sustained inflation alignment with the medium-term target, set at 4 per cent (within a +/- 2 per cent band), while also supporting economic growth, the MPC said in a statement.

RBI’s Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6.50 per cent and shifted its stance to ‘neutral’ to focus on aligning inflation with the target of 4 per cent, while supporting growth.
India’s GDP growth is projected at 7.2 per cent for 2024-25, with inflation expected to rise in the short term but ease later in the year, driven by favourable agricultural conditions.

India’s economic outlook remains stable, with real GDP growth for the first quarter (Q1) of fiscal 2024-25 (FY25) recorded at 6.7 per cent, driven by robust private consumption and investment. Encouraging trends in agriculture, bolstered by above-normal rainfall, healthy reservoir levels, and kharif sowing, suggest strong performance in the coming months. The MPC has projected real GDP growth at 7.2 per cent for FY25, with Q2 at 7.0 per cent, and Q3 and Q4 at 7.4 per cent each. For Q1 FY26, GDP growth is projected at 7.3 per cent.

Inflation saw a sharp drop to 3.6 and 3.7 per cent in July and August 2024, respectively, down from 5.1 per cent in June. However, inflation is expected to rise in the short term due to base effects and rising food prices, with the September print likely to show an uptick. Despite this, food inflation is predicted to ease in Q4 2024-25, thanks to favourable kharif crop arrivals and a promising rabi season.

The MPC highlighted that the domestic economy continues to be supported by strong consumption and investment trends, providing scope for focusing on aligning inflation with its target. With inflation expected to moderate, aided by a strong agricultural outlook and sufficient food grain buffer stocks, the shift in policy stance from ‘withdrawal of accommodation’ to ‘neutral’ grants the MPC flexibility to monitor ongoing inflation dynamics. Risks remain from global geopolitical tensions, market volatility, and rising commodity prices.

The next MPC meeting is scheduled from December 4 to 6, 2024.

Fibre2Fashion News Desk (KD)