The Reserve Bank of India (RBI) is gearing up for its next Monetary Policy Committee (MPC) meeting, scheduled from August 6 to August 8, 2024. This highly anticipated event will mark the third monetary policy decision of the fiscal year 2024-25 (FY25). The outcome of the meeting, which directly impacts the repo rate and India’s interest rate outlook, will be announced by RBI Governor Shaktikanta Das on Thursday, August 8.
The repo rate is the rate at which the RBI lends money to commercial banks in India, and it plays a crucial role in influencing loan interest rates, inflation control, and overall economic growth. The upcoming policy review has garnered significant attention due to ongoing inflation concerns and the RBI’s stance on future monetary policy.
What to expect from the RBI monetary policy review?
The RBI’s Monetary Policy Committee consists of six members, including Governor Shaktikanta Das as its chair. The MPC has maintained the repo rate at 6.5% since February 2023, leaving it unchanged for eight consecutive policy reviews. This trend may continue as the central bank faces inflationary pressures, especially driven by rising food prices.
A poll conducted by Business Standard ahead of the meeting revealed that most economists expect the MPC to maintain the current interest rate for the ninth consecutive time. The prevailing inflationary conditions, with food prices still weighing heavily on the economy, are expected to influence the RBI’s decision. While some have advocated for interest rate cuts to support growth, inflation remains the central concern.
RBI’s key objectives
The RBI has two main goals: maintaining price stability and promoting economic growth. The inflation target set by the Indian government, as measured by the Consumer Price Index (CPI), is 4%, with an upper tolerance limit of 6% and a lower tolerance limit of 2%. However, recent data indicates that inflation is edging toward the higher end of this range.
In June 2024, India’s retail inflation rate rose to 5.08%, marking a four-month high. Food inflation, a significant contributor to the overall rate, stood at a concerning 9.36%. In light of these figures, Governor Das had commented earlier that it was “too premature to talk about interest rate cuts,” highlighting the ongoing inflationary pressures.
The inflation target has been difficult to meet in recent years, especially during the COVID-19 pandemic. The target exceeded the RBI’s comfort zone of 6% during FY21 and FY22. While inflation has moderated somewhat since then, it remains above ideal levels, and managing inflation remains a priority for the central bank.
In its projections, the RBI expects retail inflation to gradually decline, averaging 4.5% in FY25, down from 5.4% in FY24. This forecast indicates cautious optimism about taming inflation while sustaining growth.
Growth outlook
On the growth front, the RBI has a positive outlook for the Indian economy. India’s real GDP growth in FY24 stood at a strong 8.2%, surpassing the growth rates of all major global economies. For FY25, the central bank revised its growth forecast upward to 7.2%, up from an earlier projection of 7%. This optimistic forecast is supported by resilient domestic demand, industrial production, and ongoing policy support.
However, growth concerns remain in the backdrop, with some MPC members previously advocating for rate cuts. In the May 2024 meeting, two members argued that maintaining high interest rates for an extended period could dampen growth, particularly by increasing borrowing costs for businesses and consumers. With inflation expected to moderate, these members saw an opportunity for a more growth-friendly stance on interest rates.
When and where to watch the RBI MPC policy review?
The final decision from the MPC’s three-day meeting will be announced by Governor Shaktikanta Das on August 8, 2024. This announcement will provide critical insights into the RBI’s views on inflation, growth, and future interest rate trajectories.
More Read
The policy review will be closely watched by economists, financial markets, and businesses alike, as it will influence the cost of borrowing, lending rates, and broader economic conditions in the coming months.
You can watch the live announcement on various platforms, including:
- Business News Channels: Major financial news networks such as CNBC-TV18, ET Now, and Bloomberg Quint will provide live coverage of the policy announcement.
- RBI’s Official Website: The policy review and official statement will be available on the Reserve Bank of India’s official website.
- Business Standard: Extensive real-time updates, expert analysis, and commentary will be available through Business Standard and other financial news outlets.
Stay tuned for live updates and in-depth analysis of the policy review on August 8, as the RBI unveils its monetary policy outlook for the rest of FY25. The decision is expected to provide crucial guidance on the future trajectory of inflation control and economic growth in India.
