RBI Monetary Policy Announcement: The Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced the second bi-monthly monetary policy of the financial year 2024-25. The RBI Governor said that the Monetary Policy Committee (MPC) decided to keep the benchmark repo rate unchanged at 6.5 per cent for the eight consecutive time by a 4:2 majority. It also decided to continue with its stance of ‘withdrawal of accommodation’. RBI raised its GDP growth forecast for FY25 to 7.2 per cent from 7 per cent earlier. The central bank retained the FY25 inflation forecast at 4.5 per cent.
This is the second meeting of the RBI MPC after the new financial year FY2025 started from April 1 and the third meeting of 2024 after the February Policy meeting held between February 6-8. The Monetary Policy Committee invariably meets for 3 days before announcing its decision at the end of the 3-day period. The next RBI MPC meeting is scheduled on August 6. The MPC is required to meet at least four times in a year.
The ECB cut its benchmark rate to 3.75% from a record high of 4% on June 6 for the first time since 2019. The bank warned however that “wage growth is elevated, and inflation is likely to stay above target well into next year.” It declined to signal how far or how fast it might cut, saying it would decide meeting by meeting.
According to the CRISIL MI&A Research estimates, the cost of home-cooked non-veg thali declined by 7 per cent in May, while that of veg thali became dearer by 9 per cent on-year during the same month. The cost of non-veg thali declined due to an estimated drop of approximately 16 per cent in the prices of broiler year-on-year on a high base of last fiscal. Meanwhile, the price of veg thali increased due to a surge of 39 per cent in tomato prices, 41 per cent in potato prices and 43 per cent in onion prices on-year, largely because of the low base of last fiscal.
April 3-5, 2024
June 5-7, 2024
August 6-8, 2024
October 7-9, 2024
December 4-6, 2024
February 5-7, 2025
In the last quarter of FY23, on February 8, the RBI had increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.50 per cent.
The MPC had met in April before that to assess the macroeconomic situation and decided not to hike the country’s repo rate, keeping the key lending rate at 6.5 per cent unanimously. The RBI MPC, with a 5:1 majority, maintained the withdrawal of accommodation stance, RBI Governor Shaktikanta Das had said. The RBI had also stated the real GDP growth projection for FY24 was at 6.5 per cent. However, fears of sustained core inflation remain persistent on weather-related vagaries, OPEC+’s surprise announcement and rising commodity prices.
Before August, the MPC meeting was held on June 6-8 and the Central Bank had decided unanimously to keep the policy repo rate unchanged at 6.50 per cent. The MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.
Before October, the MPC meeting was held on August 8-10 and the Central Bank had decided to keep the key policy repo rate unchanged at 6.5 percent, maintaining the status quo for the third time in a row. The MPC voted in 5:1 majority to maintain the ‘withdrawal of accommodation’ stance to ensure that inflation progressively aligns with the target, while supporting growth, Shaktikanta Das had said. “Consequently, the standing deposit facility (SDF) rate remains at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent,” the RBI governor had added.
Before December, the MPC meeting was held on October 4-6 and the central bank had decided to keep the key policy repo rate unchanged at 6.5 percent, maintaining the status quo for the fourth time in a row. The MPC decided by a majority of 5 out of 6 members to remain focussed at withdrawal of accommodation to ensure inflation aligns to the target by supporting growth.
During its December meeting, the RBI MPC had announced its decision to keep the repo rate unchanged at 6.50 per cent. This was the fifth meeting wherein the MPC decided to maintain the status quo on the repo rate. “The Reserve Bank of India’s Monetary Policy Committee after a detailed assessment of the evolving macroeconomic developments, has decided unanimously to keep the repo rate unchanged at 6.5 per cent,” RBI Governor Shaktikanta Das had said, amid India’s better-than-expected economic growth. The RBI governor had said that FY24 real GDP growth was projected at 7 per cent. Real GDP growth for the next year was projected at 6.7 per cent in Q1, 6.5 in Q2 and 6.4 in Q3.
The last MPC meeting was held on February 6-8 and the central bank had decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent. The MPC had also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. “These decisions are in consonance with the objective of achieving the medium- term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” Das had announced after the end of the three days meeting.
The last MPC meeting was held on April 3-5 and the central bank had decided to keep the policy repo rate unchanged at 6.5 per cent as retail inflation continued to be above its target of 4 per cent. The six-member MPC headed by Governor Shaktikanta Das also decided to maintain the policy stance at ‘withdrawal of accommodation’. The RBI had projected India’s real GDP growth rate for FY25 at 7 per cent and CPI inflation for FY25 was estimated at 4.5 per cent.
The Centre determines the inflation target in consultation with the RBI, in terms of the Consumer Price Index (CPI) once in five years. In 2016, the Centre had set the CPI inflation target of 4 per cent till March 2021 (with an upper tolerance limit of 6 per cent and a lower tolerance limit of 2 per cent). This target was retained and will now be the goal till March 2026.
The RBI last hiked the repo rate to 6.5 per cent in February 2023. The repo rate is the interest rate at which the RBI lends money to commercial banks, which has a direct impact on big-ticket loans like home loans.
When inflation rises, central banks across the world respond by increasing the repo rate, which leads to tightening of borrowing conditions for commercial banks. This results in a decrease in the money supply in the economy, ultimately helping to curb inflation.
The MPC or Monetary Policy Committee of RBI determines the policy repo rate required to achieve the inflation target and also keeps a watch on the liquidity condition and overall state of the economy.
This is the monetary policy committee’s second meeting for the financial year 2024-25, which started on June 5. The body was constituted in 2016 and is required to meet at least four times a year.
The panel headed by RBI Governor Shaktikanta Das has three external members. It can be noted that Shaktikanta Das’ term as the RBI Governor is set to end in December this year. Other members of MPC are Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Rajiv Ranjan, and Michael Debabrata Patra. Every member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.
The Monetary Policy Committee meeting headed by RBI Governor Shaktikanta Das ends today and the MPC will announce its decision on repo rate. RBI Governor Shaktikanta Das will deliver his monetary policy statement at 10:00 am. This can be watched on the official YouTube channel of RBI.
RBI MPC is expected to continue the pause stance and keep the repo rate unchanged at 6.5 per cent. The RBI has raised the repo rate by 250 basis points (bps) since May 2022.