The Reserve Bank of India kept the repo rate unchanged at 6.5% for the fifth successive meeting. A few highlights from the meeting!
Inflation
CPI inflation fell by about 2% points since the last MPC meeting to 4.9% in October 2023 on a sharp correction in prices of certain vegetables, deflation in fuel, and a broad-based moderation in core inflation (CPI inflation excluding food and fuel).
Uncertainties in food prices along with unfavourable base effects are likely to lead to a pick-up in inflation in November-December.
Adequate buffer stocks for cereals and a sharp moderation in international food prices, along with pro-active supply-side interventions by the Government may keep food price pressures under check.
Inflation is projected at 5.4% for 2023-24, with Q3 at 5.6% and Q4 at 5.2%
Assuming a normal monsoon next year, inflation for Q1 of the financial year 2024-25 is projected at 5.2%, Q2 at 4.0%, and Q3 at 4.7%.
Domestic economy
Domestic economic activity is exhibiting resilience. GDP grew by 7.6% year-on-year in the second quarter of 2023-24, underpinned by robust investment and government consumption, which cushioned the drag from net external demand.
On the supply side, gross value added (GVA) rose by 7.4% in Q2, driven by buoyant manufacturing and construction activities.
Continued strengthening of manufacturing activity, buoyancy in construction, and gradual recovery in the rural sector are expected to brighten the prospects of household consumption.
With improvement in exports, the drag from external demand is expected to moderate. Headwinds from the geopolitical turmoil, volatility in international financial markets, and geoeconomic fragmentation pose risks to the outlook.
RBI has projected the GDP growth for 2023-24 at 7.0% with Q3 at 6.5% and Q4 at 6.0%.
Global growth
Global growth is slowing at a divergent pace across economies with underlying inflationary pressures staying relatively stubborn.
Market sentiments have improved since the last MPC meeting. Sovereign bond yields have declined, the US dollar has depreciated, and global equity markets have strengthened. Emerging market economies (EMEs) continue to face volatile capital flows.