RBI August Policy Review: Status quo maintained; 'withdrawal of accommodation' stance continued
The apex bank RBI continued with its policy rate at 6.5 per cent.
The RBI in its bi-monthly policy outcome today maintained status quo keeping in view the larger macros and the financial conditions and in view of the overall outlook for the eighth straight time. Consequently, repo rate continues to be at 6.5 per cent voted in favour by a majority of 4:2 and the focus remains on withdrawal of accommodation. The current halt in rates is reportedly the second-largest in the past 25 years.
This was after the US Fed also resorted to continue with the same policy rate in its bid to tame down higher inflation.
“We think the MPC will remain on a cautious hold in the upcoming meeting, with a likely vote of 4-2 in favour of maintaining the repo rate at 6.5%. We expect the monetary policy stance to be unchanged at “withdrawal of accommodation,” in line with the rate decision,” it said in the note.
The decision has largely being taken as accounted for earlier amid high inflation which is still above the RBI's 4 per cent target. In June 2024, inflation rose to 5.08 per cent.
RBI governor Shaktikanta Das noted that several central banks are moving towards policy pivots. "The near term outlook is positive, but see significant challenges to medium term global growth,” he said as he revealed the policy outcome.
GDP outlook for FY25:
The RBI in its outcome today has continued with its GDP growth outlook of 7.2 per cent for FY25. Furthermore, the apex banker has not tinkered with the GDP outlook for the four quarters. Real GDP growth forecast for FY25 was hiked to 7.2 per cent with Q1 at 7.3 per cent; Q2 at 7.2 per cent; Q3 at 7.3 per cent; and Q4 at 7.2 per cent.
Inflation outlook
While giving out his inflation forecast, the RBI Governor said ensuring price stability eventually results in and supports a period of sustained growth.We have decided to focus on inflation and support price stability to ensure growth, he added.
RBI has tweaked its CPI inflation forecast for Q2FY25 to 4.4 per cent, up from the previous estimate of 3.8 per cent. The Q3FY25 forecast has also been slightly revised to 4.7 per cent from 4.6 per cent, while the Q4FY25 forecast has been lowered to 4.3 per cent from 4.5 per cent. For Q1FY26, CPI inflation is projected at 4.4 per cent.
Liquidity conditions
On the liquidity conditions, the governor noted that system liquidity transited from deficit in June to surplus conditions in July. In tune with the changing liquidity conditions, the Reserve Bank conducted two-way
operations under the LAF37 to ensure that the inter-bank overnight rate remained closely aligned to the policy repo rate.
Experts expectation on interest rate cut by RBI
Experts largely sought and expect 25-50 bps rate cut in this financial year in order to spur growth. This is as the PMI data is still not convincing and the latest corporate earnings also may be given a push by the fresh rate cut. The next meeting of the MPC is scheduled during October 7 to 9, 2024.
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