RBI keeps repo rate unchanged at 6.5%; raises FY25 GDP growth forecast to 7.2%

The Reserve Bank of India (RBI) on Friday (June 7) decided to keep the policy rate unchanged for the eighth time in a row, saying it will maintain a tight vigil on inflation.

The rate increase cycle was paused in April last year after six consecutive rate hikes, aggregating to 250 basis points since May 2022.

Announcing the second bi-monthly monetary policy for the current financial year, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5 per cent. He said MPC will remain watchful of elevated food inflation amid the expectation of a normal monsoon.

Upped growth projections

The RBI raised the growth projection to 7.2 per cent from an earlier estimate of 7 per cent for the current financial year on rising private consumption and revival of demand in rural areas.

Further, Das said estimates released by the National Statistical Office (NSO) placed India's real gross domestic product (GDP) growth at 8.2 per cent in 2023-24.

"During 2024-25 so far, domestic economic activity has maintained resilience," he said, adding that manufacturing activity continues to gain ground on the back of strengthening domestic demand.

Also, the services sector maintained buoyancy, as evident in available high-frequency indicators. The developments relating to growth and inflation are unfolding as per "our expectations", he noted.

When the projected GDP growth of 7.2 per cent for 2024-25 materialises, it will be the fourth consecutive year with growth at or above 7 per cent.

The government has mandated the RBI to ensure CPI inflation at 4 per cent with a margin of 2 per cent on either side.

Private consumption, rural demand

Governor Das said private consumption, the mainstay of aggregate demand, is recovering with steady discretionary spending in urban areas.

The revival in rural demand is getting a fillip from improving farm sector activity and investment activity continues to gain traction on the back of ongoing expansion in non-food bank credit.

He also said the forecast of above normal south-west monsoon by the India Meteorological Department (IMD) is expected to boost kharif production and replenish the reservoir levels.

"Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7.2 per cent with Q1 at 7.3 per cent, Q2 at 7.2 per cent, Q3 at 7.3 per cent, and Q4 at 7.2 per cent. The risks are evenly balanced," Das said.

He also emphasised that the healthy balance sheets of banks and corporates, the government's continued thrust on capex, high capacity utilisation, and business optimism augur well for investment activity.

hiked the threshold for bulk fixed deposits to Rs 3 crore from existing Rs 2 crore.

Hikes threshold for bulk deposit

Bulk fixed deposits earn slightly higher interest rate than retail term deposits as banks offer different rates as part of their liquidity management exercise.

Now single rupee term deposits of up to Rs 2 crore with Scheduled Commercial Banks (excluding Regional Rural Banks) and Small Finance Banks will be part of retail fixed deposits.

On a review of the bulk deposit limit, it is proposed to revise the definition of bulk deposits as 'Single Rupee term deposit of Rs 3 crore and above' for SCBs (excluding RRBs) and SFBs, said Das.

Further, it is also proposed to define the bulk deposit limit for Local Area Banks as ‘Single Rupee term deposits of Rs 1 crore and above', as applicable in case of RRBs.

Ease of doing business

To promote ease of doing business, RBI has proposed to rationalise guidelines for export and import of goods and services under Foreign Exchange Management Act (FEMA), 1999 In view of the changing dynamics of international trade and in line with the progressive liberalisation of foreign exchange regulations, it is proposed to rationalise the extant FEMA guidelines on export and import of goods and services, Das said.

"This will further promote ease of doing business and provide greater operational flexibility to authorized dealer banks. Draft guidelines will be issued shortly for stakeholder feedback," he said.

With regard to deepening of digital payment, Das said it is proposed to establish a Digital Payments Intelligence Platform for network level intelligence and real-time data sharing across the digital payments' ecosystem.

Global economic growth

External demand should get a fillip from improving prospects of global trade, the governor said.

On global economic growth, Das said the growth is sustaining its momentum in 2024 and is likely to remain resilient, supported by a rebound in global trade.

Also, global inflation is easing, but the final leg of this disinflation journey may be tough. Central banks remain steadfast and data-dependent in their fight against inflation.

Local considerations

Market expectations regarding the timing and pace of interest rate cuts are also changing with incoming data and central bank communication, the governor said.

"There is a view that in matters of monetary policy, the Reserve Bank is guided by the principle of 'follow the Fed'.

"I would like to unambiguously state that while we do keep a watch on whether clouds are building up or clearing out in the distant horizon, we play the game according to the local weather and pitch conditions," Das said.

In other words, he said, "While we do consider the impact of monetary policy in advanced economies on Indian markets, our actions are primarily determined by domestic growth-inflation conditions and the outlook".

Digital payments

The Reserve Bank has taken a number of measures over the years to deepen digital payments while ensuring their safety and security, and these measures have boosted consumer confidence, he said.

Growing instances of digital payment frauds, however, highlight the need for a system-wide approach to prevent and mitigate such frauds, he said.

"It is, therefore, proposed to establish a Digital Payments Intelligence Platform for network level intelligence and real-time data sharing across the digital payments' ecosystem. To take this initiative forward, the Reserve Bank has constituted a committee to examine various aspects of setting up the Platform," he said.

The Reserve Bank has taken several pioneering initiatives in recent years to encourage innovation in the fintech sector, he said, adding, one such key initiative is the global hackathon: 'HaRBInger - Innovation for Transformation'.

The first two editions of the hackathon were completed in the year 2022 and 2023, respectively, he said. The third edition of the global hackathon, 'HaRBInger 2024' with two themes, namely 'Zero Financial Frauds' and 'Being Divyang Friendly', will be launched shortly, he added.T

RBI policy after election results

This RBI policy is the first one after the Lok Sabha election results 2024. RBI MPC began its three-day meeting on June 5 and the decision came on Friday.

India’s economic activity continues to remain resilient and its outlook for the current financial year remains strong. India's gross domestic product (GDP) for the January-March quarter of fiscal 2023-24 (Q4FY24) was at 7.8%, driven by strong growth in the manufacturing sector. The Indian economy grew by 8.2% for the full year (FY24).

According to data released by the National Statistical Office (NSO), the real gross value added (GVA) grew at a rate of 7.2% in FY24, compared to the 6.7% growth observed in FY23.

(With agency inputs)