RBI's Monetary Policy Review: Focus on Growth While Keeping Inflation in Check

The Reserve Bank of India (RBI) announced its first bi-monthly monetary policy statement for 2024 on February 8th, choosing to keep key rates unchanged to continue supporting economic growth.

Repo Rate Unchanged at 6.50%

The RBI decided to keep the benchmark repo rate, at which it lends to banks, steady at 6.50%. The rate has remained unchanged since May last year after the RBI increased it by 90 basis points between May and August 2022 to contain inflation.

The RBI stance has now clearly shifted to focus more on improving growth prospects, with inflation expected to remain within the 2-6% target range set for the Monetary Policy Committee.

GDP Growth Projected at 6.5%?

The RBI marginally increased its GDP growth forecast for the next fiscal year 2024-25 to 6.5% from the 6.4% estimated earlier.

The optimism stems from global headwinds receding such as commodity price corrections and supply-chain bottlenecks easing. India’s economy remains resilient with decent corporate earnings, stable bank credit growth and higher capex indicating demand revival.

Inflation to Moderate Further

Retail inflation, which hit a high of 7.8% in April 2022, has already moderated over the last quarters of 2022 primarily due to softening commodity and oil prices.

As per RBI Governor Shaktikanta Das, the disinflation process is expected to gain momentum, with inflation projections revised down to 5.3% for FY 2023-24 from 5.9% earlier. However, risks of resurgence in commodity prices and volatility in global financial markets persist.

Support Growth While Ensuring Inflation Remains Contained

The policy statement has made the RBI stance abundantly clear - inflation control has been achieved substantially, providing room now to focus on pushing economic growth through both rate cuts and liquidity enhancing measures whenever the situation demands.

Private investment remains a laggard and sustained efforts are essential to make India transition towards a higher growth phase over the medium run. The RBI is now clearly prioritizing growth while keeping inflation expectations anchored and preventing generalized second-round price pressures, striking a delicate balance.

Overall, the policy emphasizes calibrated monetary policy support for the consolidating economic revival while being watchful of inflation trends.

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