The Reserve Bank of India‘s Governor Shaktikanta Das on Thursday announced the outcomes of its bi-monthly Monetary Policy Committee meeting.
The repo rate, key lending rate, was kept unchanged at 6.5 per cent with focus on withdrawal of accommodation stance. Meanwhile, the GDP and inflation forecast were also retained at 7.2 per cent and 4.5 per cent respectively.
Here’s everything you need to know about Das and Co’s outlook for the year.
- Repo Rate: With a majority of 4:2, the committee decided to keep the stance unchanged, to ensure that inflation progressively aligns to the target, while supporting growth.
- SDF: The standing deposit facility (SDF) rate was retained at 6.25 per cent.
- MSF: Marginal standing facility (MSF) and bank rates stood at 6.25 per cent and 6.75 per cent, respectively.
- Inflation: Inflation forecast at 4.5 per cent for FY25 remained unchanged. The inflation forecast for FY26 is projected at 4.4 per cent. Inflation target on quarterly basis stands at 4.4, 4.7 and 4.3 per cent for Q2, Q3 and Q4 respectively.
- Food inflation: Food inflation could impact headline inflation if not taken into consideration and monitored closely, Das and Co. noted. “It has to remain vigilant to prevent spillovers or second round effects from persisting food inflation and preserve the gains made so far in monetary policy credibility,” Das said.
- GDP: The real GDP forecast for FY25 remained unchanged at 7.2 per cent, with GDP projections standing at 7.2, 7.2, 7.3 and 7.2 per cent respectively, for each of the four quarters of the fiscal year.
- UPI: The Central Bank projects a further expansion in the userbase of UPI. Das and Co. have proposed to introduce “delegated payments” in UPI.
- Delegated Payments: The introduction of Delegated Payments in UPI would help a primary UPI user set a UPI transaction limit for a secondary UPI user in the primary user’s bank account, the Central Bank said. RBI expects this measure to amplify the usage of digital payments across India.
- Cheque clearance: Das and Co. propose to reduce the clearing cycle for cheques from the present T+1 days to a few hours.
- Forex: India’s foreign exchange reserves have recorded a new high of $675 billion as of August 2, 2024.
- Current Account Deficit: The country’s current account deficit came down to 0.7 per cent of the GDP in FY24, a moderation from 2.0 per cent in FY23. This has been attributed to a lower trade deficit and robust service and remittances receipts.
- Deposits: External commercial borrowings recorded a moderation between April-June 2024-25, as non-resident deposits recorded higher net inflows during April-May in comparison to the previous fiscal year.
- Global Growth: Inflation is receding grudgingly across major economies, with a steady growth outlook for the globe, Das said. However, the positive near-term outlook doesn’t entail continued optimism in the medium-term global growth trajectory. Geopolitical tensions, fragmentations and rising rapid public debts are among some factors that would pose new challenges for the global economy.
- Domestic Growth: The domestic growth trajectory remained resilient, Das and Co said. Manufacturing activity continued to gain ground amid improving domestic demand. However, possible La Nina conditions developing in the second half of monsoon could have an impact of agricultural production. Further, improving prospects of global trade are expected to aid external demand.
- Liquidity and Financial Market Conditions: The weighted average call rate (WACR) remained close to the middle of the LAF corridor. The yields on certificates of deposit (CDs) and 3-month treasury bills (T-bills) eased across term money market segment. Moreover, the 10-year G-Sec yield softened in June, July and August so far.
- Global Financial Markets: Global financial markets saw turmoil as risks of a recession in the US surfaced. Flared-up tensions in the Middle East had implications, too. These geopolitical factors are expected to have implications on emerging market economies, Das and Co. noted. India, however, has built strong buffers that help the domestic economy from such global spillovers, the RBI said.
- Home equity loans: Home equity or top-up loans grew at a brisk pace in FY24. The Central Bank said that banks and NBFCs offered top-up loans on other collateral loans such as gold loans. However, Das and Co. further said that regulatory prescriptions relating to loan to value (LTV) ratio, risk weights and monitoring of end use of funds were not being strictly adhered to by certain entities.
- Third-Party Outsourcing: Das and Co. mentioned the July 19 Microsoft outage that caused disruption across the world. The RBI asked Banks to be cautious when dealing with third-party outsourcing for technology, and said that risk-management would reduce such outages in the future.
- External Sector: Foreign direct investment flows picked up in FY24, with FDI rising by more than 20 per cent between April-May, 2024. India’s overall external sector remained resilient, Das and Co. stated, adding that key indicators continued to improve throughout the fiscal year.