Below the Quote on RBI MPC By Manish Chowdhury, Head of Research, StoxBox
The RBI has decided to keep the repo rate unchanged in its August MPC meeting, reflecting India's robust growth despite uncertainties in weather, geopolitics, and AI-driven tech disruptions. While the economic outlook remains positive, the central bank refrained from revising the inflation forecast downwards due to elevated food prices. Confident in its inflation management efforts, the RBI aims to achieve its 4% target without disrupting liquidity. India's economy is buoyed by resilient high-frequency and fiscal indicators, supported by an all-time high forex reserve, positioning the RBI well to handle unforeseen risks. However, the slow pace of inflation moderation necessitates caution. On the global front, the global economic outlook remains resilient although with some moderation in pace. Inflation is retreating in major economies, but service price inflation persists. International prices of food, energy and base metals have eased since the last policy meeting. With varying growth-inflation prospects, central banks are diverging in their policy paths. This is creating volatility in financial markets. Amidst recent global sell-offs in equities, the dollar index has weakened, sovereign bond yields have eased sharply, and gold prices have soared to record highs. Domestically, strong urban and rural consumption helped to maintain economic stability, while the global outlook shows steady but uneven expansion. The RBI emphasizes that sustainable high growth is unattainable without price stability. Encouragingly, the broad-based softening in core inflation continues. The potential La Nina conditions in the second half of the monsoon could impact agricultural production, adding another layer of complexity. Notably, the RBI Governor acknowledged the alignment between market expectations and RBI policies. He reiterated the focus on sustainably reducing inflation towards the 4% target before considering a policy shift. Given the current momentum in high-frequency indicators, there is optimism for upward revisions to GDP forecasts going forward. With more clarity on FY26 inflation and GDP growth trajectory going ahead, we expect the RBI to initiative dovish stance from Q3FY25 and a probable rate cut in Q4FY25.
Highlights of RBI Monetary Policy Meeting
* The MPC meeting outcome was in line with our expectations which remained staus quo. A majority of 4:2 kept the repo rate unchanged at 6.5%. The SDF and MSF rates were unchanged at 6.25% and 6.75%, respectively.
* The MPC decided by a majority of 4 out of 6 members to remain focused on withdrawing accommodation to ensure that inflation progressively aligns with the target while supporting growth.
* The GDP growth forecast for FY25 was unchanged at 7.2% as estimated earlier, underpinned by a resilient global economy, rural demand improvement, healthy capacity utilisation levels at industries, and robust business optimism. The GDP forecast for Q1 was revised downwards to 7.1% from 7.3%, while growth forecast for Q2, Q3 and Q4 was kept unchanged at 7.2%, 7.3% and 7.2%, respectively. The central bank forecast GDP growth for Q1FY26 to be 7.2%.
* The consumer price inflation forecast for FY25 was kept unchanged at 4.5%, with the outlook for agriculture and rural economy looking bright. Also, this year's expectations of a normal monsoon forecast underpinned the inflation outlook. The consumer price inflation forecast for Q2 was revised upwards to 4.4% from 3.8%, Q3 was revised upwards to 4.7% from 4.6% and Q4 was revised downwards to 4.3% from 4.5%. The central bank expects Q1FY26 inflation at 4.4%. However, the central bank remains guarded as the trajectory of key rabi crops, particularly pulses and vegetables, needs to be closely monitored given the recent sharp upturn in prices.
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