RBI's Monetary Policy Committee second meeting of FY25 from June 5-7

A poll by Bloomberg revealed that economists expected the India's central bank to maintain the repo rate at 6.5 per cent for the eight consecutive time

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) is set to conduct its second meeting for the ongoing financial year 2024-25 (FY25) from June 5 to 7. Market analysts predict that the RBI will maintain the repo rate at 6.5 per cent, as persistent food inflation remains a concern for the inflation outlook.

Dates of the RBI MPC: June 5-7, 2024
 

What is expected from the RBI’s upcoming monetary policy?

Repo rate: The repo rate, the rate at which the RBI lends money to commercial banks, is anticipated to remain unchanged at 6.5 per cent.  According to a poll by Bloomberg, economists expect the central bank to maintain the repo rate at 6.5 per cent for the eight consecutive time.
 

Monetary policy stance: The MPC is likely to retain its current stance of ‘withdrawal of accommodation’, indicating a cautious approach towards monetary easing.
 

GDP and inflation forecasts: While some market analysts believe the RBI might revise its FY25 GDP growth projection, the inflation forecast is expected to remain unchanged.

Chair and members of RBI MPC

The RBI MPC will be chaired by RBI Governor Shaktikanta Das. The committee comprises six members in total.

The other five members are: Shashanka Bhide, Ashima Goyal, Jayanth R Varma, Rajiv Ranjan, and Michael Debabrata Patra.

RBI Governor Das' tenure as the RBI Governor is slated to conclude in December this year.

Highlights of the last RBI MPC meeting

In the previous MPC meeting, which was the first for FY25, the RBI decided to keep the repo rate unchanged at 6.5 per cent.

This decision marked the seventh consecutive time the rate had been held steady, aligning with market expectations.
 

RBI Governor Shaktikanta Das noted a steady decline in core inflation over the past nine months and highlighted that the fuel component of the Consumer Price Index (CPI) had been in deflation for six months. He emphasised that robust growth prospects provide the policy space to remain focused on controlling inflation.
 

Economic factors to consider

Inflation trends: Despite a gradual cooling in overall inflation, food inflation remains a significant upside risk. The core inflation has shown a declining trend, providing some relief to policymakers.

Economic stability: Unlike the volatility observed in US markets, India's macroeconomic environment has remained relatively stable. However, weak private consumption and softer private investment remain underlying concerns.

Global risks: Persistent global risk factors such as last-mile inflation, prolonged higher interest rates by the US Federal Reserve, geopolitical uncertainties, protectionism, and fluctuating oil prices continue to pose challenges.

Financial performance in FY24

Fiscal deficit: The Indian government managed to contain the fiscal deficit at 5.6 per cent of GDP for FY24, aided by higher-than-expected tax receipts. This was an improvement from the Revised Estimates of 5.8 per cent.
 

Budgetary targets: The fiscal deficit stood at Rs 16.54 trillion in FY24, against a budgetary target of Rs 17.86 trillion. The Interim Budget had revised the fiscal gap estimate to 5.8 per cent from an initial 5.9 per cent of GDP for FY24. The Centre also set a fiscal deficit target of 5.1 per cent of GDP for FY25, aiming to reduce the deficit to 4.5 per cent by FY26.

The upcoming MPC meeting will be closely watched for any signals on the economic outlook and policy direction, especially regarding how the RBI plans to balance growth with inflation control amid ongoing global and domestic economic challenges.