RBI February 2024 MPC: RBI maintains status quo; FY24 GDP growth estimate increased to 7.3%

RBI MPC February 2024 meet: In line with expectations, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the key policy rate unchanged at 6.5 per cent for the sixth consecutive time on Thursday, February 8.

In the last rate-setting meeting of fiscal 2023–24, the committee also decided to maintain the "withdrawal of accommodation" stance. The RBI Governor, Shaktikanta Das, announced in the policy speech that 5 out of 6 members voted for maintaining the stance. 

The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth, the monetary policy statement stated.

"These decisions are in consonance with the objective of achieving the mediumterm target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth," it added.

Consecutively,  SDF or standing deposit facility has been kept at 6.25 per cent, and MSF or marginal standing facility is pegged at 6.75 per cent.

At the beginning of his speech, the governor highlighted that the Red Sea crisis has emerged as the latest headwind impacting the global economy. Nevertheless, on the positive side, the governor said that growth is accelerating and outpacing most of the forecast.

On the likely stance, economists and bankers had a divided view, with some maintaining that the RBI MPC could shift to the ‘neutral’ view this time. A neutral stance or viewpoint means that the country’s apex bank can resort to either a rate cut or an increase in the interest rate.

The interest rate decision comes at a time when inflation in the country is softening; nonetheless, it is yet to align with the apex bank’s 4 per cent target.

GDP outlook: 

 For the next financial year FY25, the RBI pegged growth rate at 7 per cent. For Q1, the apex bank has estimated 7.2 per cent GDP growth, Q2 GDP is estimated at 6.8 per cent, Q3 at 7 per cent and Q4 at 6.9 per cent.

The governor mentioned that domestic economic activity remains strong. He added that the momentum of economic activity in FY24 is expected to continue in FY25.  For the ongoing fiscal year, the RBI MPC raised the estimates for real GDP growth by 30 bps to 7.3 per cent from the earlier estimates of 7 per cent.

Inflation forecast:

For the financial year ending March 2024, the central bank has retained inflation estimate at 5.4 per cent, with  Q4 at 5 per cent even as food price inflation remains a concern, uncertainty around crude prices lingers and chances of domestic growth momentum creating demand pressure on inflation persists.For FY25, the MPC projects the headline inflation at 4.5 per cen with Q1 at 5.0 per cent; Q2 at 4.0 per cent; Q3 at 4.6 per cent; and Q4 at 4.7 per cent.

Inflation is edging down from multi-decade highs, with intermittent upticks, noted Shaktikanta Das- RBI Governor.

"Going forward, the inflation trajectory would be shaped by the evolving food inflation outlook. Rabi sowing has surpassed last year’s level. The usual seasonal correction in vegetable prices is continuing, though unevenly. Yet considerable uncertainty prevails on the food price outlook from the possibility of adverse weather events. Effective supply-side responses may keep food price pressures under check. The continuing pass-through of monetary policy actions and stance is keeping core inflation muted. Crude oil prices, however, remain volatile. Manufacturing firms covered in the Reserve Bank’s enterprise surveys expect some softening in the growth of input costs and selling prices in Q4:2023-24, while services and infrastructure firms expect higher input cost pressures and growth in selling prices," the statement said. 

The next meeting of the MPC is scheduled during April 3 to 5, 2024.

"Unlike market expectations, RBI's tone was not dovish. Das was clear that tail risks have the possibility of undoing the work on disinflation. With RBI's inflation projection of 4.5% for FY25, any expectations of cuts coming in the current year become unlikely. We think the progress in food prices will be the key monitorable for RBI's tone in the upcoming policy. Like other central banks, higher growth for the current and next year gives RBI more headroom to be on a wait-and-watch mode, Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers stated post the RBI's MPC today.

Inflation is edging down from multi-decade highs, with intermittent upticks.

Inflation is edging down from multi-decadhighs, with intermittent upt