RBI governor Shaktikanta Das said the transmission of the 250-basis-point increase in the policy rate between May 2022 and Feb 2023 was not complete. While half of bank loans, including home loans, are linked to the repo rate, the other half are linked to the cost of deposits or are fixed and yet to fully reflect the market rates.
RBI projected 4.5% inflation for FY25, and trimmed price forecasts for the first and third quarters of the next financial year.
In his monetary policy statement, Das said that the battle against inflation was far from over. “The last mile of disinflation is always the most challenging and that has to be kept in mind,” he said. Das said that RBI would persist in maintaining a scarcity of money to control prices.
The monetary policy committee voted with a majority of 5:1 to keep the repo rate (at which RBI lends to banks) unchanged at 6.5%. The other rates at which RBI lends to banks – the standing deposit facility and the marginal standing facility – remain at 6.25% and 6.75%, respectively.
The MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawing accommodation to ensure that inflation progressively aligns with the target while supporting growth.
Announcing the MPC decision, the RBI governor said that global growth is expected to remain steady and prospects of a soft landing have improved with inflation easing and growth momentum improving. However, the Red Sea crisis has added to uncertainty, he said.
Das said that elevated public debt levels are raising severe concerns about macroeconomic stability in many countries, including advanced economies. He added that the public debt levels in some advanced economies compared to emerging economies were higher.
Das said India is in a relatively better position in this global environment. “Going forward, the momentum of economic activity noticed during the current year is expected to continue in the next financial year,” said Das.
Das said the real GDP growth for FY25 is projected to be 7%, with Q1 at 7.2% compared to the earlier projection of 6.7%. Q2 is forecasted to be 6.8%, an increase from the previous estimate of 6.5% made in Dec, while Q3 is anticipated to be 7%, up from 6.4%. Q4 is expected to reach 6.9%.
He added that CPI inflation is projected to be 5.4% for 2023-24, with the Q4 projection at 5% compared to the earlier forecast of 5.2%. Assuming normal inflation, the governor projected inflation for the next fiscal year to be 4.5%, with Q1 at 5% compared to the previous projection of 5.2%, Q2 remaining at 4%, Q3 at 4.6% compared to the previous estimate of 4.7%, and Q4 at 4.7%.