The Reserve Bank of India (RBI) has delivered a significant monetary policy shift, announcing a 25 basis points reduction in the repo rate to 6.50%. This decision, taken during the first bi-monthly monetary policy meeting of the new financial year, marks a pivotal move aimed at supporting economic growth while maintaining a watchful eye on inflation.
A Unanimous Decision for Growth Support
The six-member Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, voted unanimously for the rate cut. This consensus underscores the central bank's assessment of the evolving macroeconomic landscape. The committee also decided, by a majority of 4 to 2, to maintain a 'neutral' monetary policy stance. This balanced approach provides the RBI with the flexibility to adjust its policy in either direction based on incoming data.
Governor Das, while announcing the decision, highlighted that the domestic economic activity has remained resilient. However, he pointed out that the growth of the global economy has been slowing down. The RBI's action is seen as a pre-emptive measure to bolster domestic demand and investment in this context.
Revised Inflation and Growth Projections
In its detailed assessment, the RBI made important revisions to its key forecasts. The central bank now projects Consumer Price Index (CPI) inflation for 2024-25 at 4.5%, down from the previous estimate of 4.7%. This revision is based on the assumption of a normal monsoon during the year. For the first quarter of the fiscal year, inflation is projected at 4.9%.
On the growth front, the RBI retained its GDP growth forecast for FY25 at 7%. This optimistic projection is based on expectations of robust investment demand, improving rural activity, and sustained momentum in the services sector. The central bank's confidence in the growth trajectory provided room for the supportive rate cut.
Expert Acclaim for a Forward-Looking Policy
Economists and market experts have widely praised the RBI's decision, describing it as forward-looking and pragmatic. Many noted that the central bank has delivered on most fronts, balancing the needs of growth and price stability. The rate cut is expected to translate into lower borrowing costs for businesses and consumers over time, potentially stimulating credit demand.
Experts highlighted that the RBI's move is well-timed, coming amidst a global environment where other major central banks are also considering a pivot towards easing monetary policy. The decision is seen as a boost for sectors like housing and automobiles, which are sensitive to interest rate changes. Furthermore, it is expected to support the government's continued focus on capital expenditure and infrastructure development.
However, analysts also caution that the transmission of the rate cut by commercial banks to end borrowers will be crucial for its full impact to be felt. The RBI's stance indicates a data-dependent approach, meaning future policy actions will hinge on the actual evolution of inflation and growth figures in the coming months.
