Following a three-day meeting of the six-member of RBI Monetary Policy Committee (MPC), the RBI Governor said that the panel of rate-setting opted to maintain the benchmark rate unchanged at 6.5%. The important thing to note is that the MPC has shifted the policy stance to "Neutral," from "withdrawal of accommodation as was widely expected by the market pundits."
By a majority of five out of six members, MPC voted to maintain the policy repo rate at 6.50%. The SDF rate stays at 6.25%; the Bank Rate at 6.75%; the marginal standing facility (MSF) rate stays at 6.25%. Furthermore, the MPC resolved unanimously to adopt a "neutral" posture and to keep absolutely focused on a long-lasting alignment of inflation with the objective while supporting growth. Federal Reserve cut its benchmark rates by 50 bps in its recent meeting and after today’s RBI’s policy meeting, the governor has opened gates for a potential rate cut later this year, if the risks to inflation, both domestic and global, do not behave volatile.
RBI MPC meeting highlights
- In its October 2024, monitory policy meeting, the committee decided to keep its policy repo rate unchanged and decided to shift its stance to neutral and from withdrawal of accommodation.
- Eight core industries output fell by 1.8% in previous month due to high rainfall. The cumulative rainfall has been 8% above the long period average, compared to 6% below LPA during the corresponding period last year.
- Rural demand is trending upwards while urban demand continues to hold firm.
- Central government capex increased by 25.8% in July-August 2024 and private investment continues to gain steam due to expansion in non-food bank credit, higher capacity utilisation, and rising investment intentions.
- Imports of capital goods saw a growth by 8.7% in August 2024, while capital goods production saw sharp growth by 12.0% in July 2024.
- Manufacturers' investment intentions for FY25 have improved, with most firms planning similar or higher investments compared to last year.
- Seasonally adjusted capacity utilisation (CU) increased to 75.8% in Q1 FY25 from 74.6% in Q4 FY24.
- Bank credit to food processing, textiles, chemicals, base metal, and engineering goods increased y-o-y by 14.4%, 6.4%, 15.9%, 16.1%, and 16.6% in August 2024.
- Real GDP growth for 2024-25 is projected at 7.2%, with Q2 at 7.0%; Q3 at 7.4%; and Q4 at 7.4%.
- The total area sown under kharif crops is 10.11% of the full season normal area. As of Oct, 2024, all-India water storage in 155 major reservoirs stands at 88% of the total capacity.
- Inflation has been brought closer to the target range within the tolerance band.
- Core inflation increased during 2nd quarter of FY25 to 3.4% on an average with pick up in core services inflation. CPI inflation for 2024-25 is projected at 4.5%, with Q2 at 4.1%; Q3 at 4.8%; and Q4 at 4.2%.
- Headline inflation moderated to 3.6% in July from 5.1% in June by 1.5% due to a base effect of 2.9%. Food inflation moderated to an average of 5.2% during July-Aug.
- System liquidity remained in surplus during Aug-Sep and early Oct, with a pickup in government spending and decline in currency in circulation.
- Banks gross NPA stood at 2.7% as at end-June 2024, whereas for NBFC’s, Gross NPA and Net NPA ratios Stood at 2.6% and 1.1%, in June 2024.
- RBI has warned NBFCs against aggressive growth model without establishing healthy business practices and risk management.
- RBI in order to further boost adoption of digital payments has decided to increase the upper limits for UPI transactions.
