After a two-day meeting of the MPC (Monetary Policy Committee) amid worrying headline inflation and GDP (Gross Domestic Product) figures, the 5th monetary policy of the current financial year 2024-25 will be unveiled today. Shaktikanta Das, the Governor of the RBI (Reserve Bank of India), will unveil the policy. This review will offer a framework for the central bank’s 2025 policy. The rate-setting panel will embrace this policy stance for the remainder of FY25.
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Key Indicators Two Watch Out For
1- Repo Rate
The MPC didn’t change the benchmark repo rate, which remained at 6.5%, but it changed its monetary policy stance to neutral regarding accommodation withdrawal. Economists anticipate a status quo on the key interest rate until retail inflation reaches the RBI’s target level. However, a February rate cut may be offered if the next two inflation decrease.
2- Inflation
In October, the country’s retail inflation grew to 6.21% YoY, triggered by food inflation. This inflation further grew to a 15-month high of 10.9% YoY. Vegetable rates moved at a 57-month high of 42% YoY, triggered by potato (65% YoY), tomato (161% YoY), and Onion (52% YoY). According to economists, MPC must revise the Q3 inflation forecast from 4.8% to 5.5% in its December meeting and retain Q4 inflation at 4.2%.
3- Growth
India’s GDP growth was near a two-year low of 5.4% YoY in July-September, the lowest in seven quarters. Decreasing investment and subdued growth in the manufacturing and mining sectors contributed to this. As per ICICI Bank, RBI, which once restricted ECL Finance and Edelweiss ARC to safeguard the financial system, now must revise its FY25 growth forecast to a lower rate of 7.2% YoY.
4- Liquidity
The Head of SBM Bank India’s Treasury, Mandar Pitale, said growth would significantly drop, government cash balances would lower, and RBI interventions would be needed to maintain disciplined conditions in the USD INR movement. MPC might infuse durable liquidity by reducing the CRR (Cash Reserve Ratio), which could be around 25 basis points.
5- Post Policy Rate Cut Guidance
The president and Chief Investment Officer of Shriram Life Insurance, Ajit Banerjee, shared RBI would maintain the status quo on policy rates. RBI Governor’s statement post policy will indicate the path that MPC might follow in terms of policy rates in the future.
