The Reserve Bank of India (RBI) maintained its key interest rate at 6.5% in the latest policy announcement, citing robust economic growth as a factor that will provide more room to focus on bringing down inflation towards the medium-term target of 4%. RBI Governor Shaktikanta Das compared the situation to a ‘slow-moving elephant’, emphasizing the need for vigilance in monitoring inflation. In April, Das had referred to inflation as the ‘elephant in the room which has left for the jungle’. Retail inflation in April saw a slight decline to an 11-month low of 4.83% annually. However, concerns remained due to rising food prices.
Despite the decision to maintain rates and policy stance, dissent within the Monetary Policy Committee was evident, with two members voting for a change to a ‘neutral’ stance. The GDP growth projection was revised upwards to 7.2% for the current financial year, while inflation outlook remained unchanged at 4.5%. Governor Das highlighted global concerns regarding disinflation challenges amidst various geopolitical and supply chain issues.
The stock market reacted positively to the increased GDP forecast, with the Sensex rising over 2% soon after the policy announcement. Economists have differing views on the future course of monetary policy, with some suggesting a possible rate cut in the fourth quarter of 2024, while others believe it might align with the timing of the Fed’s rate adjustments to manage market volatility.
The RBI’s focus on inflation and the awaited monsoon season’s impact on food prices are key factors driving its cautious stance. The central bank is also exploring measures to address the growth in lending towards unsecured loans and non-banking finance companies. Market experts suggest that the future of rate cuts will depend on factors like the monsoon, Budget, and neutral rates alignment. Overall, the RBI’s commitment to inflation stability and economic growth signals a balanced approach to monetary policy.”,
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