oppn parties MPC Keeps Rates Unchanged, Raises Growth Forecast To 7% For FY24

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oppn parties
MPC Keeps Rates Unchanged, Raises Growth Forecast To 7% For FY24

By Linus Garg
First publised on 2023-12-09 13:13:12

About the Author

Sunil Garodia Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

After two days of deliberations, the Monetary Policy Committee (MPC) of the RBI unanimously decided to maintain status quo on key policy rates in its December meeting. This was the fifth bimonthly meeting of the MPC in which rates were kept unchanged. Also, by a 5-1 decision, the MPC decided to maintain the stance of 'withdrawal of accommodation'.

RBI governor Shaktikanta Das said that though there has been steady decline in inflation, the policy has to be "actively disinflationary" to bring it as close to the lower threshold (4%) of the RBI tolerance band. He added that the MPC was ready to take appropriate policy actions if the situation warranted since high frequency indicators were pointing towards an increase in price of vegetables and other staples that might push up inflation. As per the bank's projection, inflation will come down marginally to 5.2% in the fourth quarter from 5.6% in this quarter. The bank was however upbeat that it will slide to 4.3% in second and third quarters of FY25.

The RBI was particularly optimistic on the growth front and revised the full year growth estimate for FY24 to 7% from 6.5% earlier. But even after this upward revision, it is clear that growth has fallen considerably in the second half from the high of 7.7% in the first half of FY24. It said that the economy has shown remarkable resilience in the face of slowdown in other major economies. It also said that the urban demand remained steady and it hoped that rural demand will bounce back soon. The RBI was also optimistic about the growth in FY25 and pegged it at 6.7% in the first quarter and expected it to fall marginally thereafter.

It is expected that if the bank's projections about inflation and growth remain on track, the MPC might think of easing policy rates. But that is in future, for with several factors - like uncertainty over the rabi crop, demand and supply equation in cereals, pulses and sugar - weighing in, there is uncertainty in near-term inflation outlook. The government has taken some supply-side actions, like banning production of ethanol from sugarcane juice to shore up sugar production and banning onion exports to contain domestic prices. But how far they will help in increasing supply and checking prices remains to be seen.