In the first meeting for the new financial year, the RBI Monetary Policy Committee kept the repo rates unchanged at 6.5%. This is the seventh straight meeting where the RBI decided to keep rates unchanged. You can find the link to the full report here
Highlights
5 of the 6 MPC members voted to keep the repo rate unchanged. One member voted to reduce the rates by 25 basis points.
Policy stance
The MPC also decided to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.
An accommodative stance means the central bank is prepared to expand the money supply to boost economic growth. Withdrawal of accommodation will mean reducing the money supply in the system which will help control inflation.
Inflation projections and key factors:
Going ahead, food price uncertainties will continue to weigh on the inflation outlook. An expected record rabi wheat production in 2023-24, however, will help contain cereal prices. Early indications of a normal monsoon also augur well for the kharif season.
On the other hand, the increasing incidence of climate shocks remains a key upside risk to food prices. Low reservoir levels, especially in the southern states, and the outlook of above-normal temperatures during April-June, also pose a concern. Tight demand-supply conditions in certain pulses and the prices of key vegetables need close monitoring.
After witnessing sustained moderation, cost-push pressures faced by firms are showing upward bias. The recent firming up of international crude oil prices warrants close monitoring. Geo-political tensions and volatility in financial markets also pose risks to the inflation outlook.
Taking into account these factors and assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 percent with Q1 at 4.9 percent; Q2 at 3.8 percent; Q3 at 4.6 percent; and Q4 at 4.5 percent
Global Economy
The global economy exhibits resilience and is likely to maintain its steady growth in 2024.
Inflation is treading down, supported by favorable base effects though stubborn services prices are keeping it elevated relative to targets.
Financial Markets
As the central banks navigate the last mile of disinflation, financial markets are responding to changing perceptions on the timing and pace of monetary policy trajectories. Equity markets are rallying, while sovereign bond yields and the US dollar are exhibiting bidirectional movements. Gold prices have surged on safe-haven demand.
GDP Projections and Key Factors:
Looking ahead, an expected normal south-west monsoon should support agricultural activity.
Manufacturing is expected to maintain its momentum on the back of sustained profitability. Services activity is likely to grow above the pre-pandemic trend.
Private consumption should gain steam with a further pick-up in rural activity and steady urban demand.
The prospects of fixed investment remain bright with business optimism, healthy corporate and bank balance sheets, robust government capital expenditure, and signs of an upturn in the private capex cycle.
Headwinds from geopolitical tensions, volatility in international financial markets, geoeconomic fragmentation, rising Red Sea disruptions, and extreme weather events, however, pose risks to the outlook. Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7.0 percent with Q1 at 7.1 percent; Q2 at 6.9 percent; Q3 at 7.0 percent; and Q4 at 7.0 percent