It is widely anticipated that the repo rate, the key lending rate, will remain unchanged at 6.5%, with the central bank continuing its focus on a “withdrawal of accommodation” stance.
The MPC’s next scheduled meeting took place from October 7 to 9, amidst significant developments in global central banking. The US Federal Reserve recently implemented a sharp 50 basis point rate cut, and several other advanced economies are expected to follow a similar path.
Some market experts speculate that the RBI may begin its own rate cut cycle as early as December.
Earlier this month, the Indian government reconstituted the MPC by appointing three new members: economists Ram Singh, Saugata Bhattacharya, and Nagesh Kumar. These members will serve on the six-member rate-setting panel for the next four years, playing a crucial role in shaping India’s monetary policy.
Between May 2022 and February 2023, the MPC raised the benchmark interest rate by 250 basis points to control inflation, after which it maintained a pause, which continues to date, with the aim of stabilizing price levels.
Highlights from August meeting
In the August MPC meeting, the repo rate was maintained with a 4:2 majority, ensuring that inflation gradually aligns with targets while supporting growth. The standing deposit facility (SDF) rate was held at 6.25%, while the marginal standing facility (MSF) and bank rates remained at 6.75%. Inflation forecasts for FY25 and FY26 were set at 4.5% and 4.4%, respectively, with quarterly projections for FY25 at 4.4%, 4.7%, and 4.3% for the second, third, and fourth quarters.Food inflation was highlighted as a critical concern, with the central bank stressing the need to monitor it closely to prevent spillover effects. The GDP forecast for FY25 remains strong at 7.2%, with quarterly projections hovering between 7.2% and 7.3%. On the digital front, the RBI is working to expand UPI usage through the introduction of “Delegated Payments,” allowing primary users to set transaction limits for secondary users.
Additionally, the central bank has proposed reducing the cheque clearance time to a few hours, improving the efficiency of the financial system. Forex reserves reached a new high of $675 billion as of August 2, 2024, while the current account deficit fell to 0.7% of GDP in FY24, down from 2% in FY23, due to a lower trade deficit and strong remittances. Non-resident deposits increased during April-May, while external commercial borrowings moderated during the same period.