RBI Monetary Policy: MPC keeps repo rate unchanged at 6.5%; CPI inflation at 4.5%

The Monetary Policy Committee (MPC) of Reserve Bank of India concludes its meeting on April 5, 2024. The meeting started on April 3. The objective of the meeting is to decide the monetary policy of India for financial year 2024-2025. 

RBI Monetary Policy on Repo Rate

The MPC has decided to keep the policy repo rate under the liquidity adjustment facility (LAF) at 6.5%. This is for the 7th time that RBI has decided to keep the rate unchanged. This decision was taken in the meeting by a five to one majority. The committee has also decided to ensure that inflation rate for FY25 aligns to the target by reducing the money supply in the system. 

Post Monetary Policy Press Conference by Shri Shaktikanta Das, RBI Governor- April 05, 2024 at 12 noon https://t.co/Drgdv0OmiA

— ReserveBankOfIndia (@RBI) April 5, 2024

“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.” announced RBI governor Shaktikanta Das in the press conference. 

MPC Meeting: Key Highlights

• RBI decides to keep policy repo rate unchanged at 6.5%
• MPC members decides to maintain policy stance at ‘withdrawal of accommodation’
• RBI projects India’s FY25 real GDP growth rate at 7%
• FY25 CPI inflation estimated at 4.5%
• RBI to launch mobile app for Retail Direct Product
• RBI allows distribution of CBDC via non-bank payment system operators
• RBI allows UPI access to third-party apps as prepaid payment instrument

MPC Decision on CPI Inflation Rate

On Consumer Price Index (CPI) inflation rate, the RBI Governor said, “It is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns to the target on a durable basis. Till this is achieved, our task remains unfinished.” 

RBI projects the CPI inflation rate for FY 2024-25 4.5% with Q1 at 4.9%; Q2 at 3.8%; Q3 at 4.6%; and Q4 at 4.5%.

“The MPC believes that durable price stability would set strong foundations for a period of high growth. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth,” he further added. 

MPC Stance on Real GDP Growth

The expected normal south-west monsoon should support agricultural activity. Manufacturing is expected to maintain its momentum on the back of sustained profitability. Services activity is likely to grow above the pre-pandemic trend,” said RBI Governor Mr. Das.

“Private consumption should gain steam with further pick-up in rural activity and steady urban demand. A rise in discretionary spending expected by urban households, as per the Reserve Bank’s consumer survey, and improving income levels augur well for the strengthening of private consumption,” he further added. 

While talking about business investments he said, “The prospects of fixed investment remain bright with business optimism, healthy corporate and bank balance sheets, robust government capital expenditure and signs of upturn in the private capex cycle.” 

Taking all these factors in account RBI has projected real GDP growth for FY 2024-25 at 7.0% with Q1 at 7.1%; Q2 at 6.9%; Q3 at 7.0%; and Q4 at 7.0%.