RBI's FY2025 Policy: Repo Rate Unchanged

The new financial year calls for new actions. The Monetary Policy Committee (MPC) held meetings from 3rd April till 5th to discuss the new repo rates and the coming year's expectations. It was looked forward by economists, policymakers, and the public. Let us look at the key points presented by the committee headed by the Reserve Bank Governor Shaktikanta Das.

What is the Monetary Policy Committee?

The Monetary Policy Committee has 6 members responsible for fixing India's repo rate. MPC meetings are held at least 4 times a year to make decisions on the terms of the financial year. The committee comprises three officials from the Reserve Bank of India including the governor and three external members nominated by the Indian Government. The committee publishes the inflation rates for each quarter and is answerable to the government of India if the inflation exceeds the range.

Repo rate:

The repo rate will not be changed from the previous rate and has been kept at 6.5%. It was decided among the committee with a majority of 5-1. The last change in the repo rate happened in February 2023.

Inflation

Inflation has slowed down and it has been a relief for the citizens. The new target inflation decided by the committee is 4%. Though core inflation has reduced to the lowest level in the series, as per the RBI governor, Shaktikanta Das, it's not time to lower the guard. “Our goal is in sight and we must remain vigilant”, said the governor.

CPI (consumer price index) inflation has been projected at 4.5% for the current financial year. It is expected to be 4.9%, 3.8%, 4.6% and 4.5% in respective quarter.

“Now the elephant has left the room and it appears to be on its way to the forest. We would like the elephant to go to the forest and stay there”

-Shaktikantha Das on inflation(referred to as the elephant in the room)

Global economy:

Faster, but weaker than historical trends, growth is expected for global trade with the economy showing stability. With global crises such as COVID-19 and the Ukraine-Russia situation, the debt situation of advanced economies is creating challenges for developing economies.

Indian economy

The projected GDP growth for this financial year is 7% with 7.1%, 6.9%, 7%, and 7% in respective quarters. With the South-West monsoon coming within expectations, agricultural and rural activities are promising. Maintaining growth in the manufacturing and service sector and controlling inflation also give hope to these projections. 

Indian Rupee showed low volatility in 2023-24 compared to the previous year, resulting from financial stability and macroeconomic fundamentals.

Upcoming proposals:

UPI has brought about great changes in the digital transformation of financial transactions, so it is considered to be enabled for deposits at cash deposit machines. Currently done through CDMs, the UPI incorporation could become more convenient and less time-consuming for the users.

Another proposal is to allow consumers to use UPI apps such as BHIM, Gpay, etc to make payments from the digital wallet, making the transactions easier and convenient. 

The Retail DIrect portal, launched in 2021, is now proposed to have a mobile application to improve investments in government securities.

Central Bank Digital Currency (CBDC) currently piloted in more use cases could be made accessible to consumers by allowing non-bank payment system operators to offer CBDC wallet.

As the new financial year has started it has been a promising year for new starts and a good future. The key takeaways from the MPC meetings were as follows as discussed by Governor Shaktikanta Das:

• Inflation is moderating and GDP growth is robust
• MPC remains focused on aligning inflation to the target on a durable basis; the task is not yet finished
• The financial sector continues to remain stable
• The external sector also continues to be resilient
• As we move towards RBI@100, the RBIU will continue to focus on financial stability and promoting a financial sector payment system that is robust, resilient, and future ready