The next RBI Monetary Policy Committee meeting is scheduled from February 5-7, 2025, as part of the FY 2024-25 schedule.
Inflation and GDP Growth
- CPI Inflation
- Average headline CPI inflation during Q3 of 2024-25 was at 56 which is comfortably above the target but in line with RBIs base estimate.
- GDP Growth
- The growth in real GDP is expected to be at 64 during 202425 and thus well in line with the RBI forecast of 66.
Given that inflation and GDP growth outcomes have been in line with expectations the MPC will consider risks to inflation and growth in deciding the way forward.
Inflation Risks and External Pressures
- Rupee Depreciation
- The rupee has depreciated by more than 3 primarily due to renewed dollar strength and increased financial market volatility. This is an upside risk to inflation especially as the US Federal Reserve signals fewer rate cuts in 2025.
- Inflation Outlook
- RBI expects to see the headline inflation high even at 4 for the following six months and hence in the 455 band. Food inflation remains high but is getting better but core inflation seems to be sticky.
- Imported Inflation
- Imported inflationary pressures are seen to have potential downsides on account of the fall of the rupee and general globalization dynamics.
- GDP Growth
- During the second half of the year growth is likely to pick up based on private consumption. Real GDP growth for the year 2024-25 would come in lower compared to the previous year at 82 percent. However, nominal GDP growth is likely to remain at 97 percent which is similar to the previous year.
- Capital Expenditure
- The attention of the Centre at capital expenditure along with fiscal consolidation would support growth in the medium term although the slowing down of capital spending has reflected in headline growth.
- Private Consumption
- Rural demand is recovering supported by improved agricultural activity while the urban demand finds support in the stable growth in services.
- Policy Prudence
- In the wake of increased inflation risk and reasonable prospects of growth the MPC may choose not to change policy rates and to maintain status quo but support growth while also containing inflationary push.
- Liquidity Management
- The Reserve Bank of India (RBI) has been guiding the liquidity condition more so through variable rate repo auctions (VRR), cut in cash reserve ratio (CRR) by 50 basis points in December.
- Liquidity Shocks
- A sustained liquidity shortage can force up short-term interest rates, which may nullify the stimulus effect of any policy rate cuts in the future. Adequate provision of liquidity will be indispensable to underpin the operating effectiveness of future monetary policy.
