NEW DELHI: The Monetary Policy Committee (MPC) of the RBI on Thursday kept policy rate unchanged at 6.5% for the sixth time in a row and maintained its policy stance of withdrawal of accommodation.
The policy wordings indicate the central bank remains guarded against any inflation shock. The RBI maintains the FY25 inflation at 4.5%, which is 50 basis points higher than the inflation target of 4%.
Reserve Bank of India Governor Shaktikanta Das stated that the domestic economic activity was strengthening. He stated according to the first advance estimates (FAE) by the National Statistical Office (NSO), real gross domestic product (GDP) is expected to grow by 7.3% year-on-year in 2023-24 on account of strong investment activity.
On the supply side, gross value added (GVA) expanded by 6.9% in 2023-24, with manufacturing and services sectors as the key drivers. Looking ahead, the recovery in rabi sowing, sustained profitability in manufacturing, and the underlying resilience of services should support economic activity in 2024-25, Das said.
Considering various factors, real GDP growth for 2024-25 is projected at 7%, with Q1 at 7.2%, Q2 at 6.8%, Q3 at 7%, and Q4 at 6.9%. Das said the risks are evenly balanced.
Considering different factors, RBI projected CPI inflation for 2023-24 at 5.4%, with the Q4 at 5%. Assuming a regular monsoon next year, CPI inflation for 2024-25 is estimated at 4.5%, with the first quarter at 5%, the second quarter at 4%, the third quarter at 4.6%, and the fourth quarter at 4.7%.
As per Ranen Banerjee, Partner and Leader Economic Advisory, PwC India, the MPC decision to keep the policy rate unchanged was expected. The stance is also kept at withdrawal of accommodation that possibly is a surprise.
“Lower government borrowings and higher international money allocations to India bonds owing to inclusion of India in JP Morgan Emerging Markets bond index will keep a downward bias on the yields,” Banerjee said.