RBI Monetary Policy, Repo Rate News: The Reserve Bank of India (RBI) Governor Shaktikanta Das is set to unveil the inaugural monetary policy of FY 2024-25 (FY25). The outcome of first Monetary Policy Committee (MPC) meeting will be announced tomorrow, April 5. (see RBI MPC outcome here)
The RBI’s latest MPC meeting is important as it might give an indication of whether the central bank is going to reduce lending rates this year or not. Read on to understand what the market is looking forward to from tomorrow’s meeting.
Key factors to monitor in the RBI MPC meet
Inflation Trajectory: India’s consumer price index (CPI)-based inflation eased to 5.09% in February from 5.10% in January. It is inching closer to the RBI’s 4% target. However, the central bank has highlighted that the “policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission.” The MPC’s inflation projections for FY 2024-25 will be closely watched. Inflation for Q1 is estimated at 5.0%, Q2 at 4.0%, Q3 at 4.6%, and Q4 at 4.7%.
GDP Growth Outlook: India’s GDP growth in the October-December quarter of FY 2023-24 came in at a robust 8.4% – the fastest among major economies. This was sharply above the RBI’s and economists’ estimates. The MPC’s projections for FY 2024-25 GDP growth, currently pegged at 7.0% with Q1 at 7.2%, Q2 at 6.8%, Q3 at 7.0%, and Q4 at 6.9%, will be closely tracked.
Policy Stance: According to a majority of economists, the RBI is likely to keep the key repo rate unchanged at 6.50% in this meeting. However, the central bank’s commentary on its “withdrawal of accommodation (reducing the money supply in the system which will rein in inflation further.)” policy stance will be keenly watched for any signals on future rate actions.
Liquidity Management: The liquidity deficit has declined since the last MPC meeting in February. However, the RBI may have to manage challenges posed by government cash balances remaining elevated and capital flows in FY 2024-25. The central bank’s approach to open market operations (OMOs) and variable rate reverse repo (VRRR) will be important.
Global Cues: The recent uptick in global crude oil prices is likely to keep the MPC’s focus on managing the impact of external shocks on the economy. The central bank’s assessment of global headwinds will provide insights into its policy trajectory.
What is MPC?
The RBI’s Monetary Policy Committee has six members, chaired by Governor Shaktikanta Das. Other members of the MPC include Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Rajiv Ranjan, and Michael Debabrata Patra.
The MPC convenes at least four times annually to evaluate the economic landscape, including inflation and growth metrics. The committee aims to strike a balance between sustaining growth and maintaining inflation within the 4.0% target. It decides whether to maintain, raise, or lower the repo rate, subsequently issuing a policy statement elucidating its decision-making rationale.
Why is MPC important?
The resolutions of the MPC significantly influence the Indian economy. They impact inflation by aligning the repo rate to maintain it within the government’s targeted range. Lower interest rates stimulate borrowing and investment, fostering economic activity. MPC’s actions also contribute to financial stability by managing liquidity and credit flow.
What will be RBI’s stance tomorrow? How will the markets be impacted in the short or long term? We will have to wait and watch.
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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing in market-linked instruments.
