On October 9, 2024, the Reserve Bank of India (RBI) released its monetary policy update, addressing interest rates, inflation, and growth expectations. Here’s a detailed summary including forecasts and concerns:
Key Data from the Policy:
- Interest Rates:
- Repo rate: Held steady at 6.5% (unchanged since February 2023).
- Standing Deposit Facility (SDF): 6.25%.
- Marginal Standing Facility (MSF): 6.75%.
- The RBI has maintained this status for 10 consecutive meetings, signaling caution in the face of inflationary risks
- GDP Growth Projections:
- FY25 growth forecast: 7.2%.
- Q2 FY 25: 7%, expected to rise to 7.4% in Q3 and Q4, with the first quarter of FY26 expected to grow at 7.3%.
- This growth is driven by private consumption, robust services, and manufacturing, supported by a healthy monsoon and Rabi season(
- Inflation Projections:
- FY25 inflation target: 4.5%.
- Expected to moderate in later quarters, with projections for Q2 at 4.1%, Q3 at 4.8%, and Q4 at 4.2%.
- The RBI predicts that food inflation, currently a concern due to rising prices, will ease by Q4, helped by a good Rabi harvest(
RBI Concerns:
- Inflation Risks:
- Food inflation remains elevated in the near term due to rising food prices, global commodity pressures, and potential weather-related disruptions. While inflation has eased slightly, the RBI is cautious, particularly with the risk of geopolitical tensions, crude oil prices, and global commodity price hikes(
- Core inflation is expected to remain under control, but the RBI is closely monitoring these factors to ensure sustained price stability(
- Global and Domestic Challenges:
- Rising commodity prices and geopolitical tensions are external risks that could impact both inflation and growth.
- While a strong Rabi harvest is expected to help moderate food inflation, weather events or global disruptions could pose significant risks(
- Liquidity and Financial Market Stability:
- The RBI noted that liquidity remained in surplus in the recent months, but brief deficits were observed in late September due to tax outflows. The central bank is actively managing liquidity to align short-term interest rates with policy targets.
- There is some concern over the aggressive growth strategies pursued by certain Non-Banking Financial Companies (NBFCs), which could lead to financial instability if not managed prudently(
Summary:
The RBI’s October 2024 policy emphasizes a cautious approach. While growth remains strong, with a forecast of 7.2% for FY25, inflation continues to be a pressing concern, particularly due to food price volatility. The policy stance has shifted to neutral, allowing flexibility for rate changes depending on evolving economic data. The RBI is focused on controlling inflation and maintaining economic stability, despite global and domestic risks.UPI Lite Limit up 2000 – 5000 and UPI 123PAY Per Transaction Limit up 1000 – 5000
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