NEWS – RBI policy panel kept repo rate unchanged, hiked GDP growth projection

HIGHLIGHTS

KEY DECISIONS:

• Repo Rate: Kept unchanged at 6.5% for the eighth consecutive time
• GDP Growth Projection: Increased to 7.2% for FY25 from the previous 7%
• Inflation Forecast: Maintained at 4.5%

Reasons for Keeping Repo Rate Unchanged

• Inflation Concerns:
  • Current Inflation Rate: 4.83% in April 2024, slightly down from 4.85% in March 2024
  • Food Inflation: Persistent due to heat wave conditions and supply disruptions
  • Target Range: RBI aims to maintain CPI within 2-6%, targeting 4% sustainably
  • Previous Year Food Inflation: Increased to 7% from 6.7% due to cereal, pulse, spice, and vegetable price hikes
• Policy Stance: Maintained ‘withdrawal of accommodation’
• MPC Vote: 4:2 majority to keep the repo rate unchanged

Impact on Loans and EMIs

• Unchanged Repo Rate:
  • External Benchmark Lending Rates (EBLR): Will not increase
  • Marginal Cost of Fund-Based Lending Rate (MCLR): Possible rise in rates as full transmission of previous hikes hasn’t occurred

Reasons for GDP Growth Projection Hike

• Improving Demand:
  • Rural and Urban Demand: Expected to improve with favorable monsoon forecasts
  • Quarterly Growth Forecasts:
    • Q1: 7.3%
    • Q2: 7.2%
    • Q3: 7.3%
    • Q4: 7.2%
  • Economic Activity:
    • Manufacturing and Services: Strong performance indicated by high PMI figures and robust expansion in activities

Monetary Policy Stance

• Liquidity Management:
  • Current Liquidity Status: Deficit in May 2024 compared to April
  • RBI’s Approach: Maintain tight liquidity to support rupee and manage short-term yields
• Monetary Stance: ‘Withdrawal of accommodation’ remains unchanged due to inflation and Fed policy uncertainties