RBI MPC Meeting 2024 Highlights: RBI keeps repo rate unchanged at 6.5%, forecasts 7.2% GDP growth for FY25

Shreya Sodhani, Regional Economist, Barclays, said, “The MPC kept its policy rate and stance unchanged in a 4-2 vote. The statement showed that a majority of the MPC remains hawkish on inflation, while an increase in its growth forecasts suggests no urgency to cut rates. We now think the RBI will cut rates only twice in this cycle and note the risk that easing may be delayed.”

“The Governor explicitly mentioned that the RBI does look at the global Central Banks’ policies, but the RBI’s monetary policy is primarily determined by domestic fundamentals. This, as we have highlighted many times, is the most apt position and an explicit mention will certainly help guide market expectations.

Overall, we continue to believe that rate cuts in India could happen only in late CY24 or early 2025, based on domestic and global economic growth (inflation doesn’t seem to be a significant policy variable at this stage). Also, we continue to believe that India’s real GDP growth could be ~6.5% in FY25, lower than RBI’s projection.”

“Today’s MPC meeting’s outcome is largely in line with market expectations. The upward revision in real GDP growth projection by 20 bps though wasn’t largely expected by market but given the momentum in recent quarters it doesn’t come as a big surprise. Also, note we now have one more MPC member in dissent voting for 25 bps rate cut along with change in stance to neutral.

The RBI’s policy rate of 6.5% amounts to a real policy rate of 2%, based on the central bank’s year-ahead inflation projection. The neutral real policy rate can be estimated as being in the 1.0%-1.5% range. The real policy rate facing the industrial sector is even higher. This creates the possibility of more members in MPC turning dovish in coming months barring any food inflation shock or big change in Fiscal policy (watch out for Final Budget FY 2025).”

The RBI governor said that the central bank’s intention is to flag any potential buildup of risks and communicate these to regulated entities. He also urged bank boards to reassess their strategies in light of the widening gap between deposit rates and credit growth. He reiterated that the RBI does not intend to micromanage business operations, leaving these decisions to the discretion of the bank boards.

When we get the confidence that inflation will stay around 4%, we will take a call on the further monetary policy, said Shaktikanta Das.

The RBI remarked that inflation is progressing very slowly, likening it to an elephant’s pace. “Elephant is walking very slowly, we would like the elephant to reach the forest and be there. We want inflation to reach its target and stay there, the RBI governor said.

With inflation hovering around 5%, the central bank remains vigilant. Their goal is for inflation to align with the 4% target in a sustainable manner.

While speaking at the post-policy press conference, RBI Governor Shaktikanta Das said that even if US Fed eases repo rate, India may not.

“The status quo in the policy stance was warranted looking at the global and local factors. We expected some measures on banking system liquidity but it seems RBI may be waiting to see the OMOs through before taking any other measure. RBI has continued with its measures to improve digital payment space which augurs well for the future and would certainly help RBI establish its global footprint.”

“MPC has delivered a status quo on Policy rate and ongoing stance on expected lines. It is worthwhile to note the changing pattern of the majority from 5:1 to 4:2 indicating an emergence of lateral thinking within the committee members.

In the recent past, there has been a frequent change in market expectations regarding the timing and pace of interest rates globally commensurate with changing incoming data and central bank communications. Against this backdrop, clarification from the governor on policy actions primarily driven out of the domestic growth inflation dynamic will align the market to focus on the domestic factors reducing the heightened correlation with rate movements in US markets in the recent past.

Taking into consideration the CPI trajectory which is projected as a one-off dip in Q2 to 3.8% followed by resurgence in Q3 and Q4 of FY 25, MPC will carefully monitor food inflation and oil prices to ascertain a descent of inflation to 4% target on durable basis.

This may be considered as a lead indicator to estimate the first policy rate easing likely to be preceded by the probable change of stance to “neutral” in the third quarter of this financial year (OCT-DEC); if the inflation trajectory turns out as projected by MPC.”

Ajay Kumar Srivastava, Managing Director & CEO, Indian Overseas Bank

“We welcome the decision of RBI maintaining a status quo on the repo rate by keeping it unchanged at 6.5% and its GDP growth expectation at 7.2% for FY24. The decision to continue remaining focused on the withdrawal of accommodation reflects a balanced approach to sustain economic growth while keeping inflation in check. RBI’s decision on e-mandates for recurring payments to be extended to fastags, introduction of auto replenishment of UPI-like wallet, and establishment of a digital payments intelligence platform, is all set to promote a resilient banking sector.”

While appreciating RBI’s decision to maintain a status quo on its policy rate, Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry, said that we are expecting inflation trajectory to stabilise within the target band of RBI and thereafter softening of the policy stance of the monetary policy.

“Favourable inflation trajectory and resilient economic growth will create scope for a repo rate cut in the coming times. We expect a repo rate cut as and when headline inflation softens around 4.5% and stabilising between 4 to 4.5%. The continuously accelerating economic growth and softening inflation trajectory, coupled with the status quo in repo rate will lead to high GDP growth in FY2025. A boost in the kharif production backed by forecast of above-normal southwest monsoon, stable rupee and RBI’s commitment to maintaining stability and orderliness in all segments of finance markets and institutions will be favourable for the growth of trade and industry. It is highly appreciable that RBI is strategizing to become a model central bank for the global south in the coming times,” he said.

Sonal Varma, Managing Director and Chief Economist (India and Asia ex-Japan), Nomura, said, “Two external MPC members voted for a cut versus one MPC member earlier, which suggests that the divergence within the MPC is growing further. However, we don’t think this is a signal of an impending cut, as the RBI MPC members will have to pivot to swing the needle.

The RBI continues to see the macroeconomic outlook as one of goldilocks, with higher growth and stable inflation. We largely concur with this assessment. The transition from El Nino to La Nina after June should bode well for food price inflation. With lower wage growth and inflation expectations in check, we expect headline inflation to converge with core inflation and average 4.4% in FY25. We also agree that the RBI does not have to follow the Fed. India has a large cushion of FX reserves, which gives it the space to follow an independent monetary policy by focussing on domestic considerations. Overall, with growth still strong and uncertainties high both on global and local front, there is no immediate need for policy easing. However, as inflation settles closer to the target and real rates rise further, we expect some room for easing to open up. We expect the first rate cut in October, with 75bp in cumulative easing in FY25.”

Umeshkumar Mehta, CIO of SAMCO Mutual Fund, said, “Growth momentum in the economy has given liberty to RBI to keep interest rate unchanged. Since the Indian growth engine is resilient and inflation near the 4% target, there in no hurry to reduce the interest rate unless US Fed too starts reducing the interest rates going forward. The growth, inflation and interest rates are currently well balanced inter-se for status quo to continue in the interest rate. Overall, growth momentum to continue in the economy and so will the stock market undertone.”

Vipul Bhowar, Director – Listed Investments, Waterfield Advisors, said, “The Reserve Bank of India‘s Monetary Policy Committee (MPC) has again chosen to keep the repo rate unchanged at 6.5% for the eighth consecutive time in its bi-monthly interest rate decision. This decision reflects the RBI‘s cautious approach to managing inflation and supporting economic growth amidst global uncertainties and domestic challenges. With the new Modi-led NDA government taking the reins, the RBI is expected to closely monitor its fiscal policies, particularly their potential impact on inflation. This proactive stance underscores the central bank’s commitment to maintaining price stability.”

Rohit Arora, Co-Founder & CEO, Biz2Credit and Biz2X, said, “The Reserve Bank of India‘s decision to hold the repo rate steady at 6.5% for the eighth consecutive time will ensure a consistent policy approach that suppoRohit Arora, Co-Founder & CEO, Biz2Credit and Biz2Xrts financial stability, which is crucial for sustaining economic growth. The RBI‘s commitment to nimble and flexible liquidity management through various operations, both repo and reverse repo, along with the deployment of a mix of instruments to modulate liquidity, points to their dedication to maintaining an orderly and stable financial market environment. Governor Das’s emphasis on preserving financial stability reassures us of the robust framework governing our financial institutions and markets. These measures, combined with the positive outlook on GDP growth and inflation rates, further strengthen our confidence in India‘s economic resilience. The ongoing developments in the digital payment landscape and the supportive monetary policies continue to foster a conducive environment for businesses and investors alike.”

Samir Jasuja, CEO and MD of PropEquity, said, “The decision of RBI is on the expected lines. With overall inflation falling within the RBI range, a policy rate cut may not be very far away. Real estate prices have gone up substantially and a future rate cut will give much higher purchasing power to the customer which is the need of the hour. Such a move would be a welcome news for homebuyers across cities including metro cities as well as tier II and III cities.”

“MPC’s decision to keep policy rates unchanged, though expected, has a surprise element since 2 members out of 6 were in favour of rate cut. Mr. Jayant Varma was in favour of a rate cut in the last meeting also. This means the number of members in favour of a rate cut is increasing. So a rate cut is likely in the next meeting.

Another positive from the Governor’s speech is the upward revision in FY25 GDP growth rate to 7.2% from 7% earlier. This augurs well for corporate earnings and, therefore, for the stock market.”

Dharmakirti Joshi, Chief Economist, CRISIL Ltd, said, “While a decoupling is on across the Atlantic — the European Central Bank (ECB) began cutting rate on Thursday even as the US Federal Reserve keeps it higher for longer — the RBI has preferred to stand pat, in line with consensus.

The Fed has elbow room to pursue tight monetary policy because growth in the US is robust, while Europe is on the other side, with growth concerns amid elevated inflation.

The RBI, too, has policy space to keep rates higher and rein in Consumer Price Index-based (CPI) inflation to its stated goal of ~4%.

Food continues to drive the gauge in India — food inflation was 8.7% in April, while non-food was a subdued 2.4%. Our base case is a normal monsoon trimming the headline to 4.5%.

The RBI has kept its inflation forecast this fiscal unchanged at 4.5%. However, it remains more optimistic of growth, revising up GDP growth by 20 basis points to 7.2%. CRISIL’s estimate is a tad lower at 6.8%.

We now see the RBI cutting rates starting October and have lowered our expectation to two rate cuts against three foreseen earlier.”

“India’s robust economy continued its upward trajectory in Q4 FY 23/24 by clocking 7.8% growth, the momentum of which can also be largely put down to the strong sales volumes and infusion of supply in the Housing sector in the past few quarters. Coupled with other healthy macro-economic indicators and CPI at an 11-month low at 4.83% recorded in last April, RBI possesses a strong opportunity to provide a sustained, formidable platform to further elevate this holistic economic development across industries. Despite today’s move to maintain the repo rate at 6.5%, RBI should look towards consolidating the ongoing GDP growth in the upcoming MPC meets by cutting the repo rates for the first time since February 2023, and offer lower lending rates that would boost consumer spending even more.”

“With no surprises, RBI MPC has kept the status quo on the interest rates and the monetary stance in the first meeting for the eight consecutive time after the Indian general elections. RBI has continued to reaffirm its commitment to sustainable disinflation and price stability without providing any indication on the monetary policy pivot. The central bank would continue to watch out for any upward risks in food inflation in the near term, despite the forecast of an “above normal” monsoon. Further, it may also monitor the revised upcoming Union Budget to track the possible increases in welfare spend and its potential impact on inflation although the high RBI dividend of Rs 2.1 trillion will mitigate the potential risks for now.

On the inflation front, RBI has retained the CPI inflation forecast at 4.5% for the current fiscal while acknowledging the sticky nature of food inflation; we have pegged it higher at 4.8%-5.0% since there are potential risks to food and fuel inflation, the latter being vulnerable to global developments.

Given the tone of the MPC statement and the expectation of stronger domestic growth, we believe that there is a low likelihood of any rate cut by RBI in the current calendar year.”

“There were signs of a more divided policy committee, with one additional member voting for a softening in stance as well as policy direction. The majority retained their cautious stance to guide inflation towards the 4% target on a durable basis, despite recent signs of disinflation. Concurrently, the FY25 growth forecast was revised up by 20 basis points to 7.2%, underscoring the official optimistic view on recovery prospects. The MPC also signalled that they will not react to the upcoming base-effect-driven correction in inflation in 2QFY25, lowering the probability of a shift in 2H24. In all, the mix of strong growth and above-target inflation does not make a case for a shift to a less restrictive policy setting yet, validating our view that rate easing is not on the cards this year. Political developments are not expected to sway the monetary policy direction or outlook.”

Ankush Kaul, Chief Business Officer, Ambience Group, said, “RBI has maintained the repo rate at 6.5 per cent for the last 16 months. This rate has been kept in mind by the real estate sector for a long time. There is a distinct excitement and confidence among potential buyers, which will encourage buyers to invest in both residential and commercial sectors as the festive season approaches.”

Amit Goel, Co-Founder & Chief Global Strategist, Pace 360, said, “RBI left its benchmark interest rate unchanged, as expected, keeping its focus on inflation amid policy uncertainty following an unexpected election result. The Monetary Policy Committee voted four-to-two to keep the benchmark repurchase rate at 6.5%. The committee also decided to retain its hawkish policy stance of “withdrawal of accommodation”. Moreover, the standing deposit facility (SDF) rate remains at 6.25%, and the marginal standing facility (MSF) rate and the bank rate at 6.75%. RBI Governor Shaktikanta Das mentioned that the food inflation remains elevated as deflation in fuel prices is still ongoing. Further, He hat global growth is sustaining in 2024 and is likely to remain resilient.

India’s rapid economic expansion will give the central bank room to focus on price stability. Growth topped 8% in the fiscal year that ended in March, while inflation was at 4.83% in April, above the central bank’s 4% target. The RBI raised its growth projection for the fiscal year through March 2025 to 7.2% from 7% and maintained its inflation forecast at 4.5%.

We don’t expect rate cuts until the final quarter of this year and predict the RBI will likely only move after the US Federal Reserve pivots.”

“RBI needs more confidence to ensure that elephant will stay in forest for a long period of time and hence In line with expectation, RBI decided to keep rates and stance unchanged for the 8th consecutive times however with 4:2 vote. GDP forecast has been revised upward to 7.2%. Inflation projection for FY 25 has been retained at 4.5% Look like MPC wants to look through final budget and Monsoon progress to gain more confidence. Given Normal monsoon expectation and Fiscal Deficit for FY 25 likely to be remain in 4.9-5.1% in line with interim budget guidance, rate cuts by advanced economies (Canada/ ECB), Rate cuts expectation from Fed in second half of CY 2024 we assign higher probability that RBI may change the MPC stance to “Neutral” in Aug 24 preparing for rates in second half of FY 2025. Market reaction has been muted post the policy decision and 10 yr Gsec yield is trading in the band of 7-7.03%.”

“Interest rates significantly influence consumer sentiments, particularly affecting the majority of buyers in the low-to-mid segment. The current market upcycle is driven by the premium segment, which is relatively less sensitive to minor interest rate changes. Hence, the central bank’s decision to maintain the status quo is a bit disappointing. A reduction in the benchmark rates would have been ideal as it would have given further buoyancy to the real estate market, especially in the low-to-mid segment, and would have helped a lot of first-time home buyers realize their dream of owning a house.

Although the FY25 forecast for economic growth has been upwardly revised to 7.2% from 7%, and inflation is expected to remain within the target band of 2-6%, signaling towards a positive macroeconomic scenario that will buoy the homebuyer sentiments. Given the current outlook, we anticipate the demand momentum to remain strong in property markets across all major cities in India.”

“As expected, the MPC has decided to keep the repo rate unchanged at 6.5%. This decision aligns with the MPC’s calibrated measures to tackle persistent inflation. The RBI has successfully maintained the resilience of the Indian economy, contributing to sustained growth momentum even amidst a challenging global environment.

The good news is that CPI inflation continues to soften, and the GDP growth rate is projected to remain above 7% for all quarters of FY2024-25. Additionally, the monsoon is expected to be favorable, reducing potential risks to the economy.

Given these positive indicators, we anticipate optimistic sentiments to continue, also the upward trend in housing demand, particularly in the high-end and luxury segments, will persist for the foreseeable future.”

Abhishek Trehan, Executive Director, Trehan Iris, said, “The RBI‘s decision to keep the repo rate at 6.5% is expected to bring stability to the real estate sector, creating a favorable environment for growth. This move aims to bolster the sector’s momentum, potentially increasing demand for housing, especially luxury properties. As India‘s economy continues to grow, the real estate sector is positioned to have a significant impact on the country’s development, and the RBI’s repo rate policy will play a crucial role in driving that growth forward.”

Manish Jaiswal, Group COO, Eldeco, said, “With the RBI maintaining the repo rate at 6.5%, we strongly support this prudent decision by the government. This stability is crucial as it ensures consistent borrowing costs, encouraging more homebuyers and investors into the market. The robust GDP growth projection of 6.5% further boosts our confidence in expanding our projects to meet the increasing demand for residential and commercial spaces.”

Gaura Sen Gupta, Chief Economist, IDFC FIRST Bank Economics Research

“Strong growth conditions have provided RBI policy space to remain on pause till there is further clarity on food inflation risks. Heatwave condition have added to near-term upside risk to food inflation which are expected to subside with the start of the monsoon season. Core inflation remains at historical lows, which indicates that the risk of overheating is less. Another indicator which also supports this is low current account deficit. This augurs well for inflation outlook, as overtime Headline inflation moves towards core inflation.

Against this backdrop, the earliest RBI can cut interest rates is in October. By this period there will be greater clarity on food inflation risks with monsoon completed. Moreover, there will also be more clarity on the Fed policy. RBI is expected to lag the Fed in terms of quantum and timing of rate cuts, as interest rate differentials between India and US have reduced to historical low.”

Yashank Wason, Managing Director, Royal Green Realty, said, “We hail the decision of RBI MPC meeting to hold the benchmark rate at 6.5 percent for the eighth consecutive policy review. Maintaining the status quo augurs well for India’s growing economy. This move will keep the momentum of real estate going on. Housing sales across the country, including Delhi NCR, have been phenomenal in the last few quarters. The unchanged repo rate will boost the confidence of homebuyers to purchase properties and give breathers to home loan borrowers. The consistent stand of RBI will give stability to the real estate sector and its growth will significantly add traction to the country’s growing GDP and promising future prospects.”