The Reserve Bank of India (RBI) has released the monetary policy for the financial year 2024. The Monetary Policy Committee (MPC) met on the 5th, 6th and 7th of June 2024. The MPC kept the repo rate unchanged at 6.5 percent for the eighth consecutive time. The standing deposit facility rate remains at 6.25 percent while the marginal standing facility and Bank rate remain at 6.75 percent.
The central Bank maintained the stand of ‘withdrawal of accommodation’ in the monetary policy. The decisions were taken in a majority 5:1 voting by the six-member MPC, headed by Das.
On why the rates were kept unchanged, RBI Governor Shaktikanta Das, in April, had said that as the uncertainties in food prices continue to pose challenges, the MPC remained vigilant to the upside risks to inflation that might derail the path of disinflation. “Two years ago, around this time, when CPI inflation had peaked at 7.8 per cent in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on a durable basis,” the Governor had added.
The committee noted that the inflation continues to moderate with core inflation reaching its lowest level. The deflation in fuel prices is also ongoing, however food inflation remains elevated.
The committee notes the fall in core inflation for the 11th consecutive month since June 2023. The committee looking at all the factors, projected the CPI inflation with a margin of 2 percent, the statement said, “Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 percent with Q1 at 4.9 percent; Q2 at 3.8 percent; Q3 at 4.6 percent; and Q4 at 4.5 percent. The risks are evenly balanced.”
The statement said that for the Financial Year 2023-24, the GDP growth rate was 8.2 percent. Looking at all the factors like the strengthening agricultural sector activity, healthy balance sheets of banks and corporates, etc., the real GDP growth rate for 2024-25 is projected at 7.2 percent with Q1 at 7.3 percent; Q2 at 7.2 percent; Q3 at 7.3 percent; and Q4 at 7.2 percent. “Risks are evenly balanced,” said the statement.
Market’s response to RBI
Reacting to the move, Adhil Shetty, the CEO of Bankbazaar.com, said that inflation is on a declining trajectory, and GDP growth is optimistic. “At this stage, the RBI has wisely decided not to lower its guard but to continue working towards ensuring that inflation aligns durably and sustainably with its target.”
He added: “Borrowers may face continued high interest rates on loans. Since the repo rate directly influences lending rates, an unchanged rate means existing loans remain benchmarked to an elevated repo rate at 6.50 with the possibility of new loans being offered with lower spreads than older loans. As the wait for rate cuts continues, borrowing costs are likely to increase. However, interest rates on fixed deposits (FDs) are also expected to rise, with banks offering competitive rates to attract more depositors. This is the best time to monitor rates as banks may offer higher interest rates on FDs to attract more deposits, as they try to balance their own lending and deposit rates.”
The markets have reacted positively to this announcement with major indices trading in green. The BSE-Sensex jumped by 1.15 per cent or 860.64 points, to take the overall number to 75,935.15. The NSE-Nifty was also trading in the green, the index jumped by 1.07 per cent or 244.65 points to reach 23,066.05. Meanwhile, Nifty Bank has improved by 0.72 per cent or 353.45 points to reach 49,645.35.
The company was followed by Infosys, which gained 3.63 per cent or 53.45 points, taking the price to Rs 1,525.70. Tech Mahindra jumped to Rs 1,354.30, after gaining 2.80 per cent or 36.85. TCS also did well, as it gained 1.52 per cent or 58.40 points, taking it to Rs 3,888.80 per share. In addition, HCL also hopped by 1.47 per cent or 20.50 points, taking the cumulative numbers to Rs 1,418.00.
The Indian Rupee stood at 83.41 against the US Dollar.
