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RBI keeps repo rate unchanged at 6.5% for 8th time in a row; raises FY25 GDP growth forecast to 7.2%

RBI Governor Shaktikanta Das announced that the Reserve Bank of India is projecting a GDP growth rate of 7.2% for the financial year 2024-25.

RBI projects 7.2% GDP growth for FY 2024-25; Governor Das says risks are evenly balanced snt
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First Published Jun 7, 2024, 10:18 AM IST

The Reserve Bank of India on Friday opted to maintain the policy rate unchanged for the eighth consecutive time, emphasizing its commitment to closely monitor inflation. After a series of six consecutive rate hikes, totaling 250 basis points since May 2022, the rate adjustment trajectory was halted in April last year.

In the announcement of the second bi-monthly monetary policy for the ongoing financial year, RBI Governor Shaktikanta Das stated that the Monetary Policy Committee (MPC) had resolved to retain the repo rate at 6.5 per cent. 

He added that MPC will remain watchful of elevated food inflation amid the expectation of a normal monsoon.

Meanwhile, the RBI also raised its GDP growth forecast for FY2024-25 to 7.2% from 7% earlier. "GDP growth that we are now projecting for the current financial year 2024-25 is 7.2% with Q1 at 7.3%, Q2 at 7.2%, Q3 at 7.3%, and Q4 at 7.2%. The risks are evenly balanced," said RBI Governor Shaktikanta Das.

The government has also tasked the RBI with maintaining Consumer Price Index (CPI) inflation at 4.5% per cent, allowing for a margin of 2 per cent on both sides.

"The inflation growth balance is moving favourably. Growth is holding firm. Inflation continues to moderate, mainly driven by the core component, which reached its lowest level in the current series In April 2024. The deflation in fuel prices is ongoing. Food inflation, however, remains elevated. While the MPC took note of the disinflation achieved so far without hurting growth, it remains vigilant to any upside risks to inflation, particularly from food inflation, which could possibly derail the path of disinflation. Hence, monetary policy must continue to remain disinflationary and be resolute in its commitment to aligning inflation to the target of 4% on a durable basis," Das said.

"Sustained price stability would set strong foundations for a period of high growth. Accordingly, the MPC decided to keep the policy repo rate unchanged at 6.5% in this meeting of the MPC. The MPC also decided to remain focused on withdrawal of accommodation to ensure anchoring of inflation expectations and fuller policy transmission," he said.

During his monetary policy address, RBI Governor Das disclosed that the central bank had transferred Rs 2.11 lakh crore to the union government as dividend. Additionally, he noted that the central board opted to maintain the contingent reserve buffer at 6.5%, a measure aimed at enhancing the RBI's balance sheet through risk provisioning.

He further noted that India's banking system continues to exhibit resilience, supported by sound asset quality and increased profitability. Non-Banking Financial Companies (NBFCs) have demonstrated robust financial performance in FY24. Overall, both the banking sector and NBFCs, along with the broader financial sector, maintain their strength.

RBI Governor Das also announced that the central bank will implement additional measures to regulate unsecured loans and advances. He highlighted concerns about certain regulated entities charging fees without adequate disclosures.

Das also proposed setting up of a digital payments intelligence platform for real-time data sharing across the system.

 

 

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