RBI’s Bi-Monthly Monetary Policy 7th June 2024 – Key Highlights

The Monetary Policy Committee (MPC) met on 5th, 6th and 7th June 2024. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the Reserve Bank of India’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5% in its first meeting since Lok Sabha Elections 2024. It decided by a 4 to 2 majority to keep the policy repo rate unchanged at 6.50 per cent. Consequently, the standing deposit facility (SDF) rate remains at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent. The MPC also decided by a majority of 4 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. RBI decided to hold the key policy rate for the eighth consecutive time in its June 2024 meeting. The MPC had last changed the benchmark interest rate in February 2023. Real GDP growth is expected at 7.2% for FY25.

Following are the highlights of the bi-monthly monetary policy announced by the Reserve Bank of India on Friday: 

• Key interest rate (repo) remains unchanged at 6.5%
• Repo rate was last hiked in February 2023
• Focus on withdrawal of accommodative monetary policy stance to bring down inflation
• Growth projection for FY25 raised to 7.2% from 7%
• Inflation forecast for FY25 retained at 4.5%
• Food inflation still remains a concern
• The current account deficit for FY25 expected to remain well within the sustainable level
• Foreign exchange reserves touched a fresh high of $651.5 billion as on May 31, 2024
• Bulk deposit threshold raised to ₹3 crore from ₹2 crore
• Export and import regulations under the Foreign Exchange Management Act (FEMA) to be rationalised
• RBI to set up Digital Payments Intelligence Platform to harness advanced technologies to mitigate payment fraud risks
• Auto replenishment of balance Fastag, NCMC, and UPI-Lite wallets brought under the e-mandate framework
• The next monetary policy announcement on August 8.

Key Takeaways from Monetary Policy are as under:-

Interest Rate Unchanged

– The key interest rate (repo rate) remains steady at 6.5 per cent, with the last hike occurring in February 2023.

Shift in Monetary Policy Stance

– Emphasis on withdrawing the accommodative monetary policy stance to curb inflation.

Revised Growth Projection

– Growth projection for FY25 raised to 7.2 per cent from the previous 7 per cent.

Inflation Outlook

– Inflation forecast for FY25 retained at 4.5 per cent, with food inflation remaining a concern.

External Sector Stability

– The current account deficit for FY25 is anticipated to stay within sustainable levels.

Record High Forex Reserves

– Foreign exchange reserves reached a fresh high of USD 651.5 billion as of May 31, 2024.

Policy Amendments

– Bulk deposit threshold raised to Rs 3 crore from Rs 2 crore.

– Rationalization of export and import regulations under the Foreign Exchange Management Act (FEMA).

Technological Initiatives

– Establishment of a Digital Payments Intelligence Platform to mitigate payment fraud risks.

– Implementation of auto-replenishment for balance Fastag, NCMC, and UPI-Lite wallets under the e-mandate framework.

Future Outlook

– The next monetary policy announcement is scheduled for August 8.

Rationale for these decisions

The inflation-growth balance is moving favourably. Growth is holding firm. Inflation continues to moderate, mainly driven by the core component which reached its lowest level in the current series in April 2024. The deflation in fuel prices is ongoing. Food inflation, however, remains elevated.

While the MPC took note of the disinflation achieved so far without hurting growth, it remains vigilant to any upside risks to inflation, particularly from food inflation, which could possibly derail the path of disinflation. Hence, monetary policy must continue to remain disinflationary and be resolute in its commitment to aligning inflation to the target of 4.0 per cent on a durable basis. Sustained price stability would set strong foundations for a period of high growth. Accordingly, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting. The MPC also decided to remain focused on withdrawal of accommodation to ensure anchoring of inflation expectations a

nd fuller policy transmission.

Please click on the following link to read : Governor’s Statement: June 7, 2024 & Monetary Policy Statement, 2024-25 Resolution of the Monetary Policy Committee (MPC) June 5 to 7, 2024

Source: rbi.org.in, The Hindu Business Line & Money Control