Important Insights and Decisions from the MPC April 2024 Meeting

In its 3-day Monetary Policy Committee (MPC) review meeting, the RBI Governor Shaktikanta Das-led panel decided to keep the benchmark repo rate unchanged at 6.50% for the 7^th consecutive time. 

Taking into view the financial developments and macroeconomic trends, the committee voted for unchanged repo rates with a majority of 5:1. Accordingly, the marginal standing facility (MSF) rate and the Bank Rate is 6.75%, and the standing deposit facility (SDF) rate remains at 6.25%. A majority of MPC members (5:1) also voted for the withdrawal of the accommodation policy stance. 

The Outlook on Global Growth

As per the MPC, the global economy is exhibiting signs of resilience and growth in 2024. The Committee believes that global trade will experience faster growth in the current year as: 

• Global composite PMI rose to 52.3 in March 2024, a nine-month high
• Global manufacturing PMI rose to 50.6 in March 2024, the highest since mid-2022
• Year-on-year growth of the world merchandise trade volume and world industrial production is positive in 2024 after many months of contraction

Moreover, advanced economies (AEs)and emerging market economies (EMEs) continue to have growing debt-to-GDP ratios, which is concerning. In case this situation worsens in AEs, EMEs will have to bear the brunt of spillover debt. This can present as volatility in financial markets. 

Robust Growth Indicators in the Domestic Economy 

Supported by the global environment and fixed investment, MPC expects domestic economic activities to grow at an accelerated pace. As per the second advance estimate (SAE), India’s real GDP growth for the financial year 2023-24 is pegged at 7.6%. 

Moreover, RBI projects India to post a real GDP growth of 7% for the FY 2024-25. The RBI Governor enlisted the following indicators to support this claim regarding the growth of the Indian economy:

• The Purchasing Managers’ Index (PMI) has witnessed sustainable growth and touched a 16-year high in March 2024
• Services PMI has also exhibited continuous expansion and remained above 60 in February-March 2024
• As per various indicators, urban consumption has remained buoyant in the previous quarters 
• Going forward, rural consumption may catch up with the urban demand due to good rabi crops and improved prospects of Kharif crops on account of normal monsoons 

In addition to these, there are a few new measures announced that can also contribute to growth. 

• A new scheme in the International Financial Services Centre (IFSC) to promote and facilitate NRI participation in Sovereign Green Bonds
• Introduction of a feature to allow the use of UPI for cash deposits at cash deposit machines (CDMs)
• Enabling the distribution of Central Bank Digital Currency (CBDC) via a dedicated wallet offered by permitting non-bank payment system operators 

The Elephant in the Room: Inflation

Explaining the committee’s unchanged monetary policy stance, RBI Governor Shaktikanta Das remarked that two years ago, ‘the elephant in the room was inflation’ when the CPI inflation peaked at 7.8%. He added that this elephant, ‘Appears to be returning to the forest after having gone out for a walk. We would like the elephant to return to the forest and remain there on a durable basis.’

Food:

While food inflation remains a challenge, the record rabi wheat production may ease the price pressure. Moreover, the expectation of a normal southwest monsoon indicates higher production of kharif crops, which may further ease food inflation. 

However, given the forecast of above-normal temperatures in the coming months, RBI expects price volatility in certain pulses and key vegetables. 

Fuel: 

While the RBI expects the deflation in fuel prices to deepen, the MPC outlines the need for close monitoring of the recent uptick in the rate of crude oil. However, as of March 2024:

• LPG prices for households were lowered by ₹100 per cylinder
• Petrol and diesel were reduced by ₹2 per litre

Overall, the central bank believes that risks are balanced and projects CPI inflation to be at 4.5% if the monsoons are normal. Note that the inflation rate has reduced significantly and remains within the tolerance level; it remains above the RBI’s target of 4%.

Tracking India’s Forex Reserves and Foreign Trade

RBI Governor Shaktikanta Das also reiterated certain indicators that reflect the resilient nature of the Indian economy. As of March 29, the forex reserves hit an all-time high of $645.6 billion. 

What’s more, the Indian Rupee exhibited the lowest volatility in FY 2023-24 as compared to the last three years. In fact, the domestic currency was among one of the most stable major currencies in the last financial year. The Governor also pointed out that India’s current account deficit (CAD) has narrowed significantly and the country remains the largest recipient of remittances in the world.  

As expected, the unchanged repo rates will ensure that there are no changes in interest rates on different types of loans. It means that you continue to get an Instant Personal Loan of up to ₹5 lakhs at competitive rates on Fibe. To get funds quickly and without any hassle, download the Fibe Personal Loan App or log in to our website.