RBI Monetary Policy Committee (MPC) Meeting Highlights Oct 24, Read important decisions taken in meeting

October 9, 2024

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RBI Monetary Policy Committee (MPC) Meeting Highlights, Read important decisions taken in meeting

The Monetary Policy Committee (MPC), after reviewing the current and evolving macroeconomic conditions, has made the following decisions:

The policy repo rate under the Liquidity Adjustment Facility (LAF) remains unchanged at 6.50%.
Consequently, the Standing Deposit Facility (SDF) rate is unchanged at 6.25%, and the Marginal Standing Facility (MSF) rate and Bank Rate remain at 6.75%.

The MPC has also shifted its monetary policy stance to ‘neutral’. This shift reflects the committee’s focus on aligning inflation with the target while simultaneously supporting economic growth. These decisions aim to achieve the medium-term goal of keeping Consumer Price Index (CPI) inflation at 4%, within a band of +/- 2%, while fostering growth.

Growth and Inflation Outlook

Global Economy

The global economy has shown resilience and is expected to maintain steady momentum for the rest of the year, though there are risks from intensifying geopolitical tensions.

Indian Economy

In India, the economy grew by 6.7% in Q1 of 2024-25, driven by private consumption and investments. The outlook for the remainder of the year includes:

Agriculture: Expected to perform well due to above-normal rainfall and robust reservoir levels.
Manufacturing and Services: Steady growth anticipated.
Private Consumption: Boosted by healthy kharif sowing and strong consumer demand during the festival season.
Investment: Supported by strong non-food bank credit growth, high capacity utilization, solid bank and corporate balance sheets, and continued government focus on infrastructure.
External Demand: Expected to improve with global trade growth.

Given these factors, real GDP growth for 2024-25 is projected at 7.2%, with quarterly estimates as follows:

Q2: 7.0%
Q3: 7.4%
Q4: 7.4%

For Q1 of 2025-26, real GDP growth is projected at 7.3%. Overall, risks to growth remain balanced.

Inflation Outlook

Headline inflation fell to 3.6% in July and 3.7% in August, down from 5.1% in June. However, inflation is expected to rise in September due to adverse base effects and increasing food prices.
Food Inflation: Expected to ease by Q4 of 2024-25, with a good kharif harvest and positive rabi season prospects. Sufficient cereal buffer stocks and favorable soil conditions should help, though weather risks remain.
Input cost pressures are expected to ease, though the recent rise in global commodity prices, especially metals and crude oil, requires close monitoring.

Taking all factors into account, CPI inflation for 2024-25 is projected at 4.5%, with quarterly projections as follows:

Q2: 4.1%
Q3: 4.8%
Q4: 4.2%

For Q1 of 2025-26, CPI inflation is projected at 4.3%. Risks to inflation are also evenly balanced.

Rationale for Monetary Policy Decisions

The MPC acknowledged that India’s growth outlook remains strong, driven by domestic consumption and investment. This allows the committee to focus on aligning inflation with its target, reinforcing the importance of long-term price stability for sustained growth.

Although there may be a temporary spike in inflation, the committee expects it to moderate as the year progresses, especially with favorable outcomes from the kharif and rabi crops and sufficient foodgrain stocks. The change in policy stance to ‘neutral’ provides flexibility to the MPC while it monitors progress on inflation, which is still a work in progress.

Risks remain due to uncertainties such as heightened global geopolitical tensions, financial market volatility, adverse weather events, and rising global food and metal prices. As a result, the MPC decided to keep the policy repo rate unchanged at 6.50% in this meeting.

Voting Decisions

Shri Saugata Bhattacharya, Professor Ram Singh, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra, and Shri Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50%.
Dr. Nagesh Kumar voted to reduce the repo rate by 25 basis points.

In terms of the policy stance:

Dr. Nagesh Kumar, Shri Saugata Bhattacharya, Professor Ram Singh, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra, and Shri Shaktikanta Das voted for the change in stance from ‘withdrawal of accommodation’ to ‘neutral’, with a focus on aligning inflation with the target while supporting growth.