IGI Logo

Below the Comments On on RBI Monetary Policy announcement By  Mr. Ajit Banerjee, Chief Investment Officer of Shriram Life Insurance

The Reserve Bank of India's Monetary Policy Committee's decision by a majority of 5-1 to keep the repo rate unchanged at 6.5 per cent for the seventh consecutive time was on expected lines. The RBI MPC has also decided to keep its stance of "withdrawal of accommodation" unchanged with a majority of 5-1. The Governor justified the continuity of repo rate at 6.5 % and retained the same stance to ensure inflation is aligned to medium term target of 4% even as growth momentum continues unabated.

The retail inflation forecast for FY24-25 has been retained at 4.5% as its previous forecasts, wherein re-alignments in projections were made between the quarters. Even though the overall inflation levels have come down from its peak, taming it altogether to the medium term target level of 4% was becoming a challenge, which the Governor also admitted. Food inflation is very volatile and is acting as a major impediment in bringing the inflation level down.

The real GDP growth for FY24-25 is projected at 7.00% with some minor tweaking done in Q1, Q2 and Q3 of FY25. The projection of GDP growth of 7% assumes that the growth would find the required support from (1) normal monsoons, (2) improving incomes thereby accelerating personal consumption and (3) bright prospects for fixed investment from robust government capex, and early signs of upturn in private capex. However, they have also taken cognizance of the potential  headwinds which could arise from geopolitical conflicts, volatility in international financial markets and geo-economic fragmentation.

To sum it up, the tone was reasonably balanced with the primary aim of bringing the retail inflation to 4% level and ensuring growth momentum to continue. RBI also didn’t give any indication on the commencement of future rate cuts. The liquidity management would continue to be nimble and flexible and steps in that regard would continue.

 Above views are of the author and not of the website kindly read disclaimer