RBI Maintains Repo Rate: Inflation Remains a Key Concern
The Reserve Bank of India (RBI) has decided to keep the repo rate unchanged, shifting its policy stance to neutral. This move highlights the central bank’s ongoing focus on inflation, as noted in a report by Union Bank of India (UBI).
Inflation Dynamics and Future Projections
The UBI report emphasizes that the Monetary Policy Committee (MPC) is closely monitoring inflation trends. It predicts that inflation rates may return to around 5% before easing by the end of the third or fourth quarter of the fiscal year 2025. Consequently, a rate cut is not expected in December, with the first potential cut anticipated in the fourth quarter of FY25.
GDP Forecast and Global Influences
UBI suggests that a significant downward revision of the GDP forecast from the current 7.2% is necessary before initiating a rate cut cycle. Global factors, such as unseasonal rainfall, geopolitical tensions affecting oil prices, and international economic events, could impact inflation in India.
Credit-Deposit Ratio and Economic Growth
The report notes an improvement in the bank’s credit-deposit ratio, which could support economic growth. However, funding challenges persist, with elevated spreads in 1-year certificates of deposit and T-bills.
Governor’s Insights on Inflation Risks
RBI Governor Shaktikanta Das has highlighted potential inflation risks from weather-related shocks and geopolitical factors. His statement, “inflation horse has been brought to the stable but we must keep the horse under tight lease,” underscores the MPC’s cautious approach to inflation management.
Doubts Revealed
RBI -: RBI stands for the Reserve Bank of India. It is the central bank of India, which means it manages the country’s money and financial system.
Repo Rate -: The repo rate is the interest rate at which the RBI lends money to commercial banks. It helps control inflation and the supply of money in the economy.
Inflation -: Inflation is when the prices of goods and services go up over time. It means you need more money to buy the same things.
Union Bank of India -: Union Bank of India is one of the largest government-owned banks in India. It provides various banking services to people and businesses.
GDP -: GDP stands for Gross Domestic Product. It is the total value of all goods and services produced in a country in a year. It shows how well the economy is doing.
FY25 -: FY25 refers to the financial year 2024-2025. In India, a financial year starts on April 1st and ends on March 31st of the next year.
Geopolitics -: Geopolitics involves how countries interact with each other, including politics, economics, and geography. It can affect things like trade and prices.
Shaktikanta Das -: Shaktikanta Das is the current Governor of the Reserve Bank of India. He is responsible for making important decisions about India’s money and banking policies.