Key Highlights
The Reserve Bank of India (RBI) held its Monetary Policy Committee (MPC) meeting on Thursday, August 3, 2024. The committee decided to maintain the repo rate, the key interest rate at which banks borrow from the RBI, at 4.25%. This decision was made by a 4:2 majority, indicating some divergence in opinion among the members.
Real GDP growth for 2024-25 is projected at 7.2 percent. This projection is based on a quarterly breakdown of 7.1% in Q1, 7.2% in Q2, 7.3% in Q3, and 7.2% in Q4.
CPI inflation for FY25 is projected at 4.5%. This projection is based on a quarterly breakdown of 4.4% in Q2, 4.7% in Q3, and 4.3% in Q4. The target is headline inflation, with food inflation having a weight of 46%.
A public repository for digital lending apps is proposed. This repository will help tackle issues with unauthorized platforms and improve oversight of digital lending activities.
Forex reserves hit $675 billion. Net Foreign Direct Investment (FDI) inflows doubled in the April to June 2024 quarter compared to the previous year.
Banks and NBFCs are advised to take remedial action to enhance operational resilience. This advice comes in light of a global outage that impacted industries.
Food inflation remains a cause for concern. The MPC may overlook temporary spikes in food inflation, but persistent high food inflation cannot be ignored due to its potential spillover effects.
Headline inflation increased to 5.1% in June, primarily driven by the food component. The fuel component in the CPI basket remained in deflation.
The MPC is in for an overhaul this year. The terms of the three external members end on October 6 and cannot be renewed. The other three members of the MPC are Das, whose current term ends in early December, Deputy Governor Michael Patra, whose contract runs until early January, and Executive Director Rajiv Ranjan.
Global markets have been roiled in recent weeks by central bank action, with the Bank of England cutting interest rates last week, the Bank of Japan hiking, and the Federal Reserve preparing to ease amid recession fears. This may give the Reserve Bank of India reason to stay cautious after keeping rates steady for 18 months already.
There is a chance the RBI may signal a pivot is coming in the months ahead. Thursday's meeting was the last rate decision of the six-member monetary policy committee before its current four-year term expires in October.