In its June monetary policy, the Reserve Bank of India (RBI) increased its real GDP growth forecast for FY25 to 7.2% from the previous 7%. This adjustment follows the robust GDP expansion of 8.2% in FY24, surpassing analyst expectations.
Aligned with market predictions, the RBI upheld the status quo on the benchmark interest rate (repo rate) at 6.5% during its second bi-monthly policy announcement for FY25. The decision, reached by a 4:2 majority, marks the eighth consecutive time the RBI has maintained rates unchanged, with the repo rate holding steady at 6.5% throughout FY24. The central bank also reiterated its focus on ‘withdrawal on accommodation’.
Under the leadership of RBI Governor Shaktikanta Das, the Monetary Policy Committee (MPC) convened its three-day meeting starting June 5. The last interest rate hike by the RBI occurred in February 2023.
Furthermore, the MPC left the standing deposit facility (SDF) and marginal standing facility (MSF) rates unchanged at 6.25% and 6.75%, respectively.
The MPC also revised its GDP growth projections for each quarter of FY25. For Q1FY25, the RBI now anticipates GDP growth of 7.3%, up from 7.2% previously. Similarly, it raised the GDP forecast to 7.2% in Q2FY25 from 6.8% earlier. Projections for Q3 and Q4 were also elevated to 7.3% and 7.2%, respectively, reflecting increased optimism.
Meanwhile, the MPC retained its FY25 inflation projection at 4.5%. On a quarterly basis, inflation is expected to be 4.9% in Q1, 3.8% in Q2, 4.6% in Q3, and 4.5% in Q4.
During the first bi-monthly policy review in April of FY24, the RBI opted to maintain the benchmark rate at 6.5%, a surprising decision following six consecutive rate hikes from May 2022 to February 2023, cumulatively raising the repo rate by 250 basis points to 6.5%.
