– “No News is Good News” is an apt summation of the monetary policy concluded today. The RBI kept cards close to its chest as it awaited more evidence of a sustained disinflationary transmission into the economy. Although the economic growth outlook looks buoyant, the central bank held strings for an upward revision to growth forecast as it treaded with caution due to ongoing geopolitical uncertainty. The central bank looked confident in its efforts to tame inflation which has receded from the highs and is moving closer to its 4% target without disrupting the liquidity in the system. With most of the high frequency and fiscal indicators showing resilience, the RBI is poised to handle any unforeseen risks with ease further supported by an all-time high forex reserve. Our sense is that the RBI will be in a wait and watch mode until Q3FY24 before committing to rate cuts and will not be surprised to see other major global central banks pressing the pedal first.

Key Highlights of RBI Monetary Policy Meeting:
The MPC meeting outcome was in line with our expectations as the repo rate was kept unchanged at 6.5% by a majority of 5:1. The SDF and MSF rates were unchanged at 6.25% and 6.75%, respectively.

The MPC decided by a majority of 5 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 kept unchanged at 7% underpinned by a resilient global economy, strong investment activity, rural demand improvement, healthy capacity utilization levels at industries and robust business optimism. The GDP forecast for Q1, Q2, Q3 and Q4FY25 stood at 7.1%, 6.9%, 7% and 7% compared to 7.2%, 6.8%, 7% and 6.9% estimated earlier, respectively.

The consumer price inflation forecast for FY25 was also unchanged at 4.5%, with the outlook for agriculture and rural economy looking bright. Also, expectations of robust rabi harvest and forecast of a normal monsoon this year underpinned the outlook for inflation. The consumer price inflation forecast for Q1, Q2, Q3 and Q4FY25 stood at 4.9%, 3.8%, 4.6% and 4.5% compared to 5%, 4%, 4.6% and 4.7% estimated earlier, respectively. However, the central bank remains guarded as the trajectory of food inflation and crude oil prices needs to be closely monitored.