RBI's Move To Leave Key Interest Rate Unchanged Brings Relief To Borrowers

What is important to note is that split 4.2 voting among the six member Monetary Policy Committee (MPC) continued. “This just shows that the members are not aligned and there is no convergence and this has been the case for sometime now,” an insider at RBI, who refused to be identified, told The Secretariat.

On Wednesday, we had predicted that the Monetary Policy Committee (MPC), in the first MPC meeting of FY25, will vote by a majority for a status quo.

Despite India’s high growth rate, rising inflation especially food prices have become a cause for concern. High vegetable prices drove overall food inflation to 9.4 per cent.

The annual consumer inflation rate in India touched 5.08 per cent in June from 4.75 per cent in the previous month, well above the RBI’s comfort zone reflecting the fastest pace of price increase since February.

Expectations for Rate Cut Later

Expectations are building up for a rate cut in the next MPC meet, scheduled between October 7 and 9. Though RBI Governor Shaktikanta Das said that the MPC will continue to remain vigilant as inflation concerns remain.

Global volatility will of course play a major role in the decision making process. The global environment, particularly in the US, has undergone a profound shift. Post the release of the  Non Farm Payrolls (NFP), the closely watched indicator of jobs in the US, fears of a recession have again come strongly out front.

“Amidst the global volatility in financial and divergent Central Banker actions, RBI remained calm and decided to maintain status quo on rates and continue with ‘withdrawal of accommodation stance’ with 4:2 vote,” Deepak Agrawal, CIO- Debt, Kotak Mahindra AMC said in a statement.

Besides the US, the two other large economies, the European Union (EU) and China, are also experiencing a deepening slowdown. EU’s largest economy, Germany, in particularly is in the midst of a prolonged slowdown, exacerbated by its trade links with a faltering Chinese domestic consumer demand. 

"The essential dilemma of global central banks has now become when to cut their policy rates and avoid the mistake of holding policy tight for too long and tipping their respective economies into a recession." according to economist Saugata Bhattacharya, former Chief Economist, Axis Bank.

RBI Forescasts High GDP Growth

The central bank’s growth projection for India during the current financial year remained unchanged as well at 7.2 per cent with the first quarter economic expansion being pegged at 7.1 per cent. Inflation based on the consumer price index is expected to be at 4.5 per cent.

RBI governor Shaktikanta Das said while the short term global growth prospective looks positive, challenges remain. He added that risks related to artificial intelligence are also emerging. Das however noted that India’s financial sector remains stable and healthy.

"Domestic economic activity continues to be resilient. On the supply side, steady progress in southwest monsoon, higher cumulative Kharif sowing and improving reservoir levels augur very well for Kharif output,” Das said while announcing the MPC’s decision. He also pointed out that manufacturing activity was gaining ground on the back of improving domestic demand.

This is a developing story and more explanatory inputs and charts will be added