RBI’s muted monetary policy: The calm before potential summer storm

At the recently concluded Monetary Policy Committee meeting of the Reserve Bank of India (RBI)—the first of the new fiscal year—the country’s central bank played it simple and safe. It maintained the repo rate—the rate at which commercial banks borrow from the RBI—at 6.5% for the seventh consecutive time since April 2023, showcasing confidence in India’s current economic path. 

Its convictions are rooted in its projections, which forecast retail inflation of 4.5% for the year ending March 2025, coupled with an expected gross domestic product (GDP) growth of 7%, reflecting robust economic prospects.

“Since the last policy, the growth-inflation dynamics have played out favourably. Growth has continued to sustain its momentum surpassing all projections. Headline inflation has eased to 5.1% during January and February 2024 from 5.7% in December 2023, with core inflation declining steadily over the past nine months to its lowest level in the series,” RBI governor Shaktikanta Das said, explaining the logic behind the MPC’s decisions. He added that the fuel component of the CPI (consumer price index) remained in deflation for six consecutive months, but acknowledged that food inflation pressures had strengthened in February.