The Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 6.5 percent during its recent meeting. They also forecasted India’s GDP growth for the upcoming financial year 2024-25 to be 7 percent.
Breaking it down, they anticipate a growth of 7.2 percent in the first quarter, 6.8 percent in the second quarter, 7.0 percent in the third quarter, and 6.9 percent in the fourth quarter. The RBI mentioned that the risks associated with these projections are evenly balanced.
For the current financial year ending in March 2024, India’s real GDP growth is expected to be 7 percent, which is slightly lower than the initial estimates by the National Statistics Office.
Looking at inflation, the RBI projected retail inflation for 2024-25 to be around 4.5 percent, with different rates for each quarter. Despite being within the RBI’s comfort range of 2-6 percent, retail inflation in December was 5.69 percent.
During the meeting, the Monetary Policy Committee (MPC) unanimously decided to maintain the repo rate, citing comfortable inflation levels and strong growth dynamics. The RBI Governor, Shaktikanta Das, highlighted that inflation is nearing the target, and growth is performing better than expected.
The RBI’s focus remains on gradually withdrawing support to align inflation with the target while still supporting growth. The Indian economy grew by 7.6 percent in the July-September quarter of the current financial year, maintaining its position as one of the fastest-growing major economies.
The RBI holds bi-monthly meetings to discuss various economic indicators, including interest rates, money supply, and inflation outlook. Despite concerns about inflation, India has managed its trajectory well compared to other countries.
Except for the recent decision to maintain the repo rate, the RBI has raised it by a total of 250 basis points since May 2022 to combat inflation. Increasing interest rates helps reduce demand in the economy, thereby helping to lower the inflation rate.