The Reserve Bank of India (RBI) has delivered a significant vote of confidence in the nation's economic momentum, officially raising its growth projection for the current financial year. In its latest monetary policy announcement, the central bank's Monetary Policy Committee (MPC) increased the real GDP growth forecast for 2024-25 (FY25) to 7.3%, up from the 7.0% estimate made in June. This upward revision comes alongside a reaffirmed commitment to price stability, with the RBI maintaining its inflation projection for FY25 at 2.9%.
Monetary Policy Committee Holds Steady on Rates
The six-member MPC, led by Governor Shaktikanta Das, concluded its three-day meeting on August 8, 2024. As widely anticipated by market analysts, the committee decided to keep the benchmark policy rates unchanged. This marks the twelfth consecutive time the repo rate has been held steady at 6.5%. The standing deposit facility (SDF) rate remains at 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate stay at 6.75%.
Governor Das, while announcing the committee's decisions, highlighted the resilience of the Indian economy amidst global uncertainties. He pointed to robust domestic demand, strengthening rural activity, and a sustained uptick in manufacturing and services as key drivers behind the improved growth outlook. The decision to maintain an unchanged policy stance of 'withdrawal of accommodation' was taken by a majority of 5 to 1 among the MPC members.
Breaking Down the Revised GDP Growth Forecast
The RBI's upgraded GDP forecast of 7.3% for FY25 is not a blanket figure but is broken down into projections for each quarter. This granular outlook provides a clearer picture of the expected growth trajectory:
- Q1 (April-June 2024): 7.4% (revised from 7.3%)
- Q2 (July-September 2024): 7.2% (revised from 6.9%)
- Q3 (October-December 2024): 7.3% (revised from 7.0%)
- Q4 (January-March 2025): 7.2% (revised from 6.9%)
This quarterly upgrade signals the central bank's expectation of stronger-than-previously-anticipated economic activity throughout the year. The revision aligns with positive high-frequency indicators and the promising start to the monsoon season, which is crucial for agricultural output and rural consumption.
Inflation Outlook and Global Risks
Despite the optimistic growth revision, the RBI remains vigilant on the inflation front. The committee retained its Consumer Price Index (CPI) inflation forecast for FY25 at 2.9%. The quarterly inflation projections are as follows:
- Q2 FY25: 3.0%
- Q3 FY25: 2.9%
- Q4 FY25: 2.8%
- Q1 FY26: 3.0%
Governor Das cautioned that while headline inflation has moderated, food price volatility remains a significant concern. He cited factors like the impact of heatwaves on vegetable prices and the need for a careful watch on global commodity prices and geopolitical tensions. The RBI's mandate is to ensure inflation aligns durably with the 4% target, and the current policy stance reflects a commitment to that goal.
The central bank also acknowledged external risks, including the trajectory of global interest rates, particularly from the US Federal Reserve, and the overall global economic environment. However, the robust domestic growth drivers and strong macroeconomic fundamentals are seen as providing a buffer against these external headwinds.
The RBI's decision to raise the growth forecast while holding rates steady is being interpreted by economists as a balanced approach. It recognizes the economy's inherent strength without compromising the ongoing battle against inflation. This policy path aims to support growth while ensuring that the gains are not eroded by rising prices, setting a stable foundation for sustainable economic expansion in the world's fastest-growing major economy.
