All eyes were on the Reserve Bank of India's Governor, Shaktikanta Das, as he announced the first bi-monthly monetary policy decision for the financial year 2024-25. In a move that aligned with the predictions of many economists, the six-member Monetary Policy Committee (MPC) decided to keep the key policy repo rate unchanged at 6.5 per cent. This marks the eighth consecutive time the central bank has held the rate steady, maintaining its stance of 'withdrawal of accommodation'.
Market Expectations and the Expert Divide
The announcement on Friday, April 5, 2024, came amidst a clear split in expectations from different sectors of the economy. While a majority of economists and market analysts had forecast a status quo, citing persistent inflationary pressures, segments of Indian industry were vocal in their hope for a rate cut to stimulate growth. The decision to pause reflects the RBI's continued prioritization of anchoring inflation expectations, even as it supports economic expansion.
The MPC's stance of 'withdrawal of accommodation' is aimed at ensuring that inflation progressively aligns to the committee's target of 4 per cent, while still fostering growth. Governor Das emphasized that domestic economic activity remains robust, providing the MPC with the room to focus on price stability. The central bank's vigilance comes against a backdrop of global economic uncertainty and volatile food prices, which have kept headline inflation elevated.
Key Economic Indicators and Future Trajectory
In his address, Governor Das highlighted several critical factors influencing the policy decision. The RBI has maintained its GDP growth projection for FY25 at 7 per cent, signaling confidence in the economy's resilience. However, the inflation outlook remains a primary concern. The central bank's mandate to keep inflation within the 2-6 per cent band continues to guide its cautious approach.
The decision implies that borrowing costs for consumers and businesses will remain at current levels. Loans for homes, vehicles, and corporate investment are unlikely to become cheaper in the immediate term. This is a calculated move by the RBI to ensure that the hard-won gains in controlling inflation are not undone by premature easing. The central bank's message is clear: the fight against inflation is not yet over, and stability is paramount for sustainable long-term growth.
Implications for Industry and Financial Markets
The industry's call for a rate cut stemmed from desires to lower the cost of capital and boost investment. While this pause may disappoint some business leaders, analysts suggest it provides a predictable and stable macroeconomic environment. Financial markets had largely priced in a pause, and the reaction was measured, with the focus shifting to the RBI's commentary on liquidity, the trajectory of food inflation, and future policy signals.
Governor Das reiterated that the MPC will remain data-dependent, closely monitoring incoming information on the inflation dynamics and the global economic landscape. The path forward for interest rates will be determined by a sustained decline in inflation towards the target. For now, the RBI's policy underscores its commitment to its primary mandate of price stability, setting the stage for the next MPC meeting in June 2024.
