RBI MPC Keeps Repo Unchanged At 6.5% For Fifth Time; FY24 GDP Raised To 7%, Inflation Kept At 5.4%

The RBI’s monetary policy committee on Friday decided to keep the repo rate unchanged at 6.5 per cent, unanimously. This is the fifth time in a row that the central bank has paused the key interest rates. The RBI has raised the FY24 GDP projection to 7 per cent, from 6.5 per cent earlier. It has kept inflation projection unchanged at 5.4 per cent for 2023-24.

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With five out of six members voting in favour, the RBI MPC remains focussed on the “withdrawal of accommodation”.

Presenting the fifth bi-monthly monetary policy of FY24, RBI Governor Shaktikanta Das on Friday said, “2023 will go down as a year of great volatility. The long-awaited normalcy still eludes the global economy. The global economy is showing signs of slowdown though unevenly across geographies. Headline inflation has receded from its peak levels.”

He said the Indian economy shows resilience and momentum, amid global slowdown.

The RBI MPC on Friday also kept the SDF unchanged at 6.25 per cent, and MSF and Bank Rates maintained at 6.75 per cent. The SDF is the lower band of the interest rate corridor, while the MSF is the upper band.

FY24 Growth Forecast

On the Indian economy, RBI Governor Shaktikanta Das on Friday said, “Economic activity exhibited buoyancy in Q2 aided by strong domestic demand. GDP posted a robust growth of 7.6 per cent in Q2:2023-24, driven by investment and government consumption.”

He added that this unsettled global economic backdrop, the Indian economy presents a picture of resilience and momentum. The real gross domestic product (GDP) growth for Q2 of the current financial year has exceeded all forecasts. The fundamentals of the Indian economy remain strong with banks and corporates showing healthier balance sheets; fiscal consolidation on course; external balance remaining eminently manageable; and forex reserves providing cushion against external shocks.

“These factors, combined with consumer and business optimism, create congenial conditions for sustained growth of the Indian economy. Looking ahead, it is our endeavour to further build on these fundamentals which are the best buffer against global shocks in today’s uncertain world,” he said.

The RBI forecasts that real GDP growth for 2023-24 is projected at 7.0 per cent with Q3 at 6.5 per cent; and Q4 at 6.0 per cent. Real GDP growth for Q1:2024-25 is projected at 6.7 per cent; Q2 at 6.5 per cent; and Q3 at 6.4 per cent.

“The protracted geopolitical turmoil, volatility in global financial markets and growing geo-economic fragmentations, however, pose risks to the outlook,” Das said.

Vivek Iyer, partner at Grant Thornton Bharat, said, “Given the political stability reiterated with the state elections win by the party backing the central government and the strong macroeconomic growth driven from the Indian hinterland and a good flow of foreign investments in India, the GDP growth forecast northward revision seems fair.”

FY24 Inflation Projections

On inflation, the RBI governor said, “Going ahead, the inflation outlook would be considerably influenced by uncertain food prices. High-frequency food price indicators point to an increase in prices of key vegetables which may push CPI inflation higher in the near term. The ongoing rabi sowing progress for key crops like wheat, spices and pulses needs to be closely monitored. Elevated global sugar prices is also a matter of concern.”

He said that on the positive side, global commodity prices, particularly, agricultural commodity prices, have softened except rice.

The RBI now projects CPI inflation at 5.4 per cent for 2023-24, with Q3 at 5.6 per cent and Q4 at 5.2 per cent. CPI inflation for Q1:2024-25 is projected at 5.2 per cent; Q2 at 4.0 per cent; and Q3 at 4.7 per cent.

Home Loan EMIs

With the status quo, home loan interests are likely to remain unchanged, bringing slight relief for those paying home loan EMIs.

Mohit Jain, managing director of Krisumi Corporation, said, “The Reserve Bank of India’s decision to maintain interest rates aims to tame inflation within its targeted range. This translates to a welcome pause in the upward trajectory of bank-offered home loan rates, thereby ensuring EMI stability for borrowers.”

He added that this positive development bodes well for the housing market, as it fuels continued momentum in sales across various property segments, including affordable, mid-range, and luxury housing throughout various regions for the foreseeable future.