RBI MPC Meeting 2024 Live Updates: RBI keeps repo rate unchanged at 6.5%, GDP growth projected at 7.2% in FY25

The global financial markets have seen turmoil on concerns of growth slow down in a major economy flare-up in geopolitical tensions in the Middle East, and the unwinding of carry trade, he said. It would be important for market participants to keep in mind the strength of India’s macroeconomic fundamentals which remain robust, he added. India has built strong buffers that impact resilient, he said. 

The Reserve Bank will continue to be nimble and flexible in its liquidity management, operation, he said. 

10-yr g-sec yield softened in June, July and Aug so far, he added. 

In FY25 so far rupee has been range-bound, he said. 

Yields on Cds and 3-month bills eased, says the governor. Term premium remain steady, he added. 

Pace of inflation moderation is uneven and needs to be watched, he said. We need to watchful to ensure CPI inflation is aligned to 4% target, he added. 

Our target is the headline inflation, where food inflation has a weight of about 46%, he said. Food inflation cannot be ignored, he added.

The public at large understands inflation more in terms of food inflation than the other components of inflation, he said. 

We cannot and should not become complacent because core inflation has fallen, he said. High food inflation adversely affects household inflation expectation which has an impact on future inflation trajectory, he added. 

MPC has to be vigilant of high food inflation, he said. MPC may look through food inflation if it is transient, he added. 

CPI inflation for the current financial year is projected at 4.5% with q2 at 4.4% q3 at 4.7% and q4 at 4.3%. CPI for Q1 of FY26 seen at 4.4%.

Core inflation touched a new low, he said. High inflation continued in July, he said. Softening in core inflation continues to be broad-based, he added. 

Global food prices easing in July, he said. 

There is considerable divergence between headline and core inflation, he said. 

Food inflation contributed to more than 75 per cent of headline inflation in May, June, he said. Vegetable processing increased sharply and contributed to 35% in June, he added. High food price momentum is likey to have continued in July, he added.

The impact of the revision in milk prices and mobile tariffs also needs to be carefully monitored, said the governor. 

A degree of relief in food inflation is expected due to progress in monsoon and kharif sowing, he said. 

We have slightly moderated the growth projection for the first quarter of the current financial year in relation to the projection. This is primarily due to updated information on certain high-frequency indicators which show lower than anticipated corporate profitability, government expenditure and core industries output

Lower corporate profitability in Q1, says RBI Governor Shaktikanta Das. 

Q1 GDP - 7.1%; Q2 GDP- 7.2%; Q3 GDP 7.3%; Q4 GDP 7.2%

Real GDP growth for q1 of next financial year (FY26) is projected at 7.2%.

The spillovers from protracted geopolitical tensions, volatility in international financial markets and geo-economic fragmentation pose risks on the downside, he said. 

Capex by the government and visible signs of pickup in private investment would drive investment activity in the current year, he added. 

Sustained buoyancy in services activity is expected to support urban consumption, he said

Services exports recorded double-digit growth in May and moderated in June, he said. 

Amid the government’s continued thrust on capex and other policy support from the government, private corporate investment is gaining steam on the back, said the RBI Governor. 

Household consumption is supporting turnaround in rural demand and steady discretionary spending in urban areas, he said.

PMI services stood strong at 60.3 in July, and is above 60 for seven consecutive months, indicating robust expansion of services. 

PMI for manufacturing at 58.1 in July remained elevated, says RBI Guv.

Manufacturing to gain ground on improving demand, he said. 

Likelihood of La Nino condition will have a bearing on agriculture, he added. Good monsoon to help agriculture sector, he said. 

Domestic economic activity continues resiliency, he added.

Demographic shifts, climate change, geopolitical tensions and fragmentations, rising public debt and new technologies such as artificial intelligence pose a new set of challenges, said the Reserve Bank of India Governor Shaktikanta Das. 

Inflation is receding gradually across major economies, he said. Several central banks are cautiously moving towards policy pivots, he added.

There have been tightening by a few central banks, and a few economies are on rate hike mode, RBI Guv added. 

Without price stability high growth cannot be sustained, he said. We have decided to focus on price stability mainly to support growth, he added. 

In a situation where the GDP is holding up, we have decided to focus on inflation and ensure price stability, mainly to support growth, said RBI Governor. 

It is important for monetary policy to stay the course while remaining vigilant, RBI Governor said. 

Resilient and steady growth in GDP enables monetary policy to focus unambiguously on inflation, he added. 

Domestic growth holding up well on steady urban consumption and growing rural consumption, said Guv Shaktikanta Das. 

MPC took the decision on a 4:2 voting basis. RBI Guv said to remain focused on “withdrawal of accommodation.”

There’s good amount of convergence between market expectations and RBI policy.

Focus remains on keeping inflation under target while focusing on growth, said RBI Governor.

The Indian rupee rose marginally in early trading on Thursday, aided by gains in most Asian currencies, with dollar-rupee forward premiums also ticking up ahead of the Reserve Bank of India’s (RBI) monetary policy decision. 

Bank of Japan (BOJ) Deputy Governor Shinichi Uchida said on Wednesday the central bank won’t raise interest rates when financial markets are unstable.

The recent strengthening of the yen would affect the BOJ’s policy decision because it reduces upward pressure on import prices, and therefore overall inflation, Uchida said.

BSE Sensex opened lower by 221.80 pts or 0.28% at 79,246.21, and Nifty 50 was down by 65.40 pts or 0.27% at 24,232.10 as at 9.15 am.

The Reserve Bank is expected to hold its key rates at the forthcoming policy review, but may sound more confident about reaching its 4 per cent inflation objective, a foreign brokerage said on Wednesday.

The rate-setting panel may prefer to stick to the ‘withdrawal of accommodation’ stance of the monetary policy, HSBC said in the report on the eve of the RBI MPC’s decision.

The Indian benchmark indices, Sensex and Nifty, are expected to open flat on Thursday. Gift Nifty at 24,175 indicates a marginal rise at open, as Nifty futures on the NSE on Wednesday closed at 24,366.45. According to analysts, the focus has now shifted to the RBI monetary policy outcome. The central bank has kept rates unchanged at 6.5 per cent for the last 18 months, and analysts expect yet another status quo stance.

India must take a relook at its current inflation targeting framework and explore one that would target an inflation rate excluding the volatile food component, Economic Survey for 2023-24 suggested on Monday.

The Survey’s suggestion comes at a time when India’s retail inflation, as measured by consumer price index (CPI), rose to four-month high of 5.08 per cent in June compared with 4.75 per cent in the previous month. This spike was largely fuelled by surge in food inflation at 9.4 per cent on the back of sharp rise in prices of vegetables.

The Reserve Bank of India’s Monetary Policy Committee’s June 2024 highlights can be read here.

The Reserve Bank of India’s Monetary Policy Committee’s April 2024 highlights can be read here.

The Reserve Bank of India’s Monetary Policy Committee’s February 2024 highlights can be read here.

The Reserve Bank of India’s Monetary Policy Committee’s December 2023 highlights can be read here.

Retail inflation, measured by the Consumer Price Index (CPI), accelerated to a four-month high of 5.08 per cent in June 2024, driven by a spike in food inflation to 9.36 per cent due to rising prices of vegetables and pulses. This June 2024 reading is also higher than the 4.87 per cent recorded in the same month last year, official data released on Friday showed.

The latest CPI inflation figures have reinforced the Reserve Bank of India’s decision to avoid cutting repo rates, despite two MPC members recently suggesting that maintaining high interest rates may be hindering economic growth.

With the economy showing strong growth momentum and retail inflation staying above the RBI’s comfort zone, majority of the rate-setting monetary policy committee (MPC) members are likely to vote for a status quo in the policy repo rate and continuation of the “withdrawal of accommodation” stance at their upcoming meeting.

With the upcoming monetary policy on August 8, expectations are rife that the repo rate will remain unchanged at 6.5 per cent as CPI inflation is still away from the 4 per cent mark.

Foreign banks and brokerages expect a status quo on policy rate at 6.5 per cent at the upcoming RBI’s Monetary Policy Committee (MPC) meeting on August 6-8. They further expect the RBI to retain its monetary policy stance as “withdrawal of accommodation”.