RBI Policy Outcome: Governor Shaktikanta Das Raises FY25 GDP Growth Forecast To 7.2%; Details Here

In its latest monetary policy review, the Reserve Bank of India (RBI) has announced an upward revision of its real Gross Domestic Product (GDP) growth forecast for the fiscal year 2024-25 (FY25) to 7.2% from the previously projected 7%. This adjustment reflects the central bank's confidence in the resilience of the Indian economy, buoyed by a strong expansion of 8.2% witnessed in the fiscal year 2023-24 (FY24).

The decision to maintain the benchmark interest rate, known as the repo rate, at 6.5% was widely expected by analysts and economists. The Monetary Policy Committee (MPC), chaired by RBI Governor Shaktikanta Das, chose to uphold the status quo with a 4:2 majority vote. This marks the eighth consecutive instance of such a decision, highlighting the RBI's commitment to its policy stance focused on 'withdrawal of accommodation'.

During the three-day MPC meeting which commenced on June 5, committee members evaluated various economic indicators and projections to arrive at their decision. Despite some speculation regarding a possible rate hike to counter inflationary pressures, the MPC opted for stability, given the need for continued support to nurture the ongoing economic recovery.

In addition to maintaining the repo rate, the MPC also decided to leave the standing deposit facility (SDF) and marginal standing facility (MSF) rates unchanged at 6.25% and 6.75%, respectively. This decision reflects the committee's confidence in the prevailing liquidity conditions and its focus on maintaining financial stability.

In conjunction with the upward revision of the GDP growth forecast for FY25, the MPC also revised its projections for each quarter of the fiscal year. The new forecasts indicate sustained economic expansion, with GDP growth expectations of 7.3% in Q1FY25, 7.2% in Q2FY25, 7.3% in Q3FY25, and 7.2% in Q4FY25. These revisions reflect the central bank's optimistic outlook on the trajectory of economic recovery, supported by various fiscal and monetary measures.

Despite the positive outlook on growth, the MPC retained its inflation projection for FY25 at 4.5%. However, the committee provided detailed quarterly inflation forecasts, anticipating rates of 4.9% in Q1, 3.85 in Q2, 4.6% in Q3, and 4.55 in Q4. This cautious approach underscores the MPC's commitment to maintaining price stability amidst evolving domestic and global economic dynamics.

RBI Governor Shaktikanta Das reiterated the committee's vigilance towards external risks to inflation, particularly emphasizing the potential impact of food inflation on the overall inflation trajectory. This proactive stance reflects the central bank's commitment to ensuring macroeconomic stability and sustainable economic growth.

Looking back at the previous fiscal year, the RBI's decision in April of FY24 to maintain the repo rate at 6.5% marked a shift from a series of consecutive rate hikes initiated in May 2022. This pause in rate adjustments followed a cumulative increase of 250 basis points over six consecutive policy meetings, illustrating the central bank's responsiveness to prevailing economic conditions and evolving inflationary pressures.

As India continues its journey towards economic recovery amidst global uncertainties, the RBI's cautious monetary policy approach aims to strike a delicate balance between supporting growth and maintaining price stability.