RBI Monetary Policy 2024 Highlights

New Delhi, June 07, 2024.

RBI governor Shaktikanta Das-led Monetary Policy Committee kept the repo rate unchanged on expected lines. RBI’s MPC meeting was scheduled from June 5-June 7th. Repo rate, the rate at which the Reserve Bank of India lends to commercial banks, currently stands at 6.5%. RBI initiated the rate hike cycle in 2022 and since then the repo rate has been raised by 250 basis points.

RBI’s Monetary Policy Committee, led by the RBI governor, has six members. The key goal is to keep the Consumer Price Inflation (CPI) closer to the 4% target with a +/- 2% range. The inflation pressures have to be tamed without compromising on the growth. CPI inflation has been within the central bank’s comfort zone for some months now, but with the monsoon season round the corner, the MPC may strike a cautious note. Additionally, India’s GDP growth rate for the fiscal year 2023-24 recently came in at a better than expected level of 8.2%, reducing the chances of a repo rate cut further.

RBI is also likely to keenly watch the policies of the incoming Modi-led NDA new government, especially with regard to fiscal measures, to study the impact on inflation.

Loan borrowers look at the RBI monetary policy for relief in loan EMIs. A high repo rate by the RBI makes it costlier for banks to borrow, which in turn results in higher interest rates for loan borrowers. Any rate cut results in lower rates, hence lowering the EMIs loan borrowers have to pay.

“The RBI’s decision to maintain the repo rate steady for the eighth consecutive time reaffirms its focus on achieving a 4% inflation target sustainably. The decision reflects a prudent stance in balancing growth concerns and inflationary pressures. With India’s GDP growth momentum remaining strong, the RBI is ensuring a balanced approach to fostering economic growth and financial stability. Said “Sujata Guhathakurta, President, Debt Capital Markets and Infrastructure Financing Business, Kotak Mahindra Bank.

The RBI was concerned with sticky food inflation amid uptrend in global food prices and industrial commodity prices. Normal monsoon this year is critical for easing food inflation. RBI also emphasized that there will not be any blind following of the Fed in terms of rate cut as they will give more weightage to local growth inflation dynamic. Overall, a prudent monetary policy in our view with potential rate cuts pushed in the 3rd quarter of FY25, said Dhawal Dalal, Chief Investment Officer – Fixed Income of Edelweiss Asset Management.

Going forward with the uncertainty around election outcomes behind us the focus would be on budget. The domestic strengths and policy focus has put the economy on a healthy growth trajectory and the rate cuts expected in the later half of FY25 is likely to aid the equity markets, said Anil Rego, Founder and Fund Manager at Right Horizons.