India's RBI keeps repo rate unchanged, raises FY24 inflation forecast

The policy repo rate under the liquidity adjustment facility (LAF) remains unchanged at 6.5 per cent. The standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the bank rate will be kept 6.75 per cent.

The three-day meeting of the six-member MPC was held from August 8 to 10.

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

The decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of plus or minus 2 per cent, while supporting growth, RBI said in a release.

There has been significant improvement in the progress of the monsoon and kharif sowing in July; however, the impact of the uneven rainfall distribution warrants careful monitoring.

Crude oil prices have firmed up amidst production cuts. Manufacturing, services and infrastructure firms polled in RBI’s enterprise surveys expect input costs to ease, but output prices to harden.

Taking into account these factors and assuming a normal monsoon, CPI inflation is projected at 5.4 per cent for fiscal 2023-24, with the second quarter (Q2) at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent, with risks evenly balanced. CPI inflation for Q1 of fiscal 2024-25 is projected at 5.2 per cent.

Looking ahead, the recovery in kharif sowing and rural incomes, the buoyancy in services and consumer optimism should support household consumption, RBI observed.

Healthy balance sheets of banks and corporates, supply chain normalisation, business optimism and robust government capital expenditure are favourable for a renewal of the capital expenditure cycle, which is showing signs of getting broad-based.

Headwinds from weak global demand, volatility in global financial markets, geopolitical tensions and geoeconomic fragmentation, however, pose risks to the outlook, it added.

Taking all these factors into consideration, real gross domestic product (GDP) growth for fiscal 2023-24 is projected at 6.5 per cent, with Q1 at 8 per cent; Q2 at 6.5 per cent; Q3 at 6.0 per cent; and Q4 at 5.7 per cent, with risks broadly balanced.

Real GDP growth for Q1 of fiscal 2024-25 is projected at 6.6 per cent.

ALCHEMPro News Desk (DS)