 "RBI MPC: Short-term inflation risk remains in focus, says Shaktikanta Das")
After the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Wednesday (October 9) kept the repo rate unchanged at 6.5 per cent for the tenth straight meeting, RBI Governor Shaktikanta Das said, “India’s growth story remains intact”. Addressing the media, the central bank governor said that there is a need for greater vigilance on inflation.
Governor Das highlighted adverse weather conditions, ongoing geopolitical conflicts, and a rise in select commodities as the key threats to its inflation forecast.
In the August MPC, Das used the metaphor of inflation as an elephant which is hard to control. However, in this MPC, the metaphor changed to a horse, signifying that the inflation worries have eased somewhat for the RBI and the risks remain evenly balanced.
The “inflation horse”, RBI Governor Shaktikanta Das said, has been brought to the stable, and has to be kept on a leash with doors closed so that it does not bolt again.
“We have greater confidence that inflation is moderating, but acutely aware there are significant risk,” said Shaktikanta Das.
Are interest rate cuts on the cards?
The MPC unanimously decided to change its stance to ‘neutral’ from the earlier ‘withdrawal of accommodation’, signalling that the central bank is open to either increasing or decreasing interest rates, depending on data related to inflation and economic growth.
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In answer to the question of a possible timeframe for interest rate cuts, Das said that interest rates will be determined by the dynamics of growth and inflation, specifically depending on the inflation growth rate.
When asked if the RBI is going to cut the repo rates in the December MPC meeting, Governor Das said that people are free to assess the RBI’s stance. However, the elevated inflation rate in the short-term is what the RBI is focusing on for now.
Answering the question about whether the deposit and credit rates have touched their peak, Das noted that the determination of rates is driven by the commercial decisions of lenders, thus making it uncertain whether deposit and credit rates have reached their peak.
Meanwhile, Deputy Governor Michael Patra said that the current holding of government bonds by foreigners is just about 3 per cent, and thus is not a cause for any worry. The MPC began its three-day meeting on Monday, October 7- 9, to discuss the fourth bi-monthly monetary policy for FY25.
RBI’s growth forecast for India
The rate for the standing deposit facility (SDF) was maintained at 6.25 per cent, while both the marginal standing facility (MSF) rate and the bank rate were held steady at 6.75 per cent.
Governor Das reported that India’s real GDP experienced a growth of 6.7 per cent in the first quarter. For FY25, the RBI has kept its gross domestic product (GDP) projection steady at 7.2 per cent. The forecast for Q2 remains at 7.2 per cent, unchanged from previous estimates. However, the projection for Q3 has been adjusted to 7.4 per cent, up from an earlier estimate of 7.3 per cent, and for Q4, it has increased to 7.4 per cent from the previously projected 7.2 per cent.
For the first quarter of FY26, the RBI anticipates GDP growth at 7.3 per cent, up from the earlier forecast of 7.2 per cent.
'Horse of inflation' inside the stable?
The Monetary Policy Committee has projected inflation at 4.5 per cent for FY25, consistent with previous forecasts. Quarterly, the Consumer Price Index (CPI) inflation is expected to be 4.1 per cent in Q2, rising to 4.8 per cent in Q3, and anticipated to be 4.2 per cent in Q4, followed by 4.3 per cent in Q1 of FY26.
The RBI observed that core inflation is likely to remain subdued. Current and projected inflation trends have prompted a shift in stance. The central bank emphasised its significant efforts to manage inflation effectively, successfully bringing it within the targeted range.