NEWS – Reserve Bank of India recently announced its Monetary Policy Decision

KEY TAKEAWAYS

– RBI keeps key policy interest rates unchanged for 9th time in a row

– Repo rate remains at 6.5%

– Standing deposit facility (SDF) rate remains at 6.25%

– Marginal standing facility (MSF) rate and Bank Rate remain at 6.75%

Definitions

– Repo Rate (6.5%): The interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks for a short period (usually overnight). This rate influences the interest rates at which banks lend to their customers.

– Standing Deposit Facility (SDF) Rate (6.25%): The interest rate at which commercial banks can park their excess funds with the RBI for a short period. This rate is usually lower than the repo rate and is used to absorb excess liquidity in the banking system.

– Marginal Standing Facility (MSF) Rate (6.75%): The interest rate at which commercial banks can borrow money from the RBI for a short period (usually overnight) when they face a shortage of funds. This rate is usually higher than the repo rate and is used to meet emergency funding needs.

– Bank Rate (6.75%): The long-term interest rate at which the RBI lends money to commercial banks. This rate influences the interest rates at which banks lend to their customers for longer periods.

Monetary Policy Committee (MPC) Decision

– 6-member MPC decides to maintain status quo with a majority of 4:2

– Focus on bringing headline retail inflation down to 4% on a sustainable basis

Inflation Projections

– CPI inflation for 2024-25 projected at 4.5%

– Assumption of a normal monsoon

– Headline inflation increased to 5.1% in June 2024, driven by food component

GDP Growth Projections

– India’s GDP projected to grow by 7.2% in current financial year

– Real GDP growth for first quarter of 2025-26 projected at 7.2%

Rationale for MPC’s Decision

– Emphasis on withdrawal of accommodation to ensure inflation aligns to medium-term target

– Growth remains resilient, but risks appear evenly balanced

– Downside risks gaining currency, dismantling present equilibrium