**RBI MPC Meeting June 2024 Highlights:**- The Reserve Bank of India (RBI) decided to hold the repo rate at **6.

50%** and forecasted a **7.

2% GDP growth** for FY25.

- Despite one more member favoring a stance change and a rate change, the RBI is not in a hurry to pivot.

The governor highlighted risks from food inflation and summer price changes, visible against a backdrop of a shallow winter price drop.

- The RBI will monitor pulses and vegetable prices, which have seen a recent uptick.

There are cautionary statements regarding core inflation as well.

Early results from enterprise surveys indicate firms expect selling prices to stay firm.

- The RBI's 4% inflation target remains sacrosanct.

The currently expected 3.

8% average inflation for Q2 FY25 is likely to be a one-off, with inflation expected to move higher beyond this point.

- The policy echoes similar sentiments as the previous one, indicating the RBI is unlikely to hasten its decision to pivot and will remain driven by the domestic growth-inflation mix in determining the timing of its policy move.

- With growth expected to remain firm, the last phase of disinflation towards the 4% target remains arduous, and the RBI would be willing to bide its time.

A shallow rate cut is expected this fiscal, probably starting in December 2024.

- The MPC maintains a cautious pause, and the commentary suggests that the MPC’s policy decisions will be determined by domestic growth-inflation dynamics while considering the impact of monetary policy outcomes in advanced economies.

- The RBI Governor explicitly stated in the context of ‘following the Fed’ that India’s growth-inflation dynamics might lead to a rate cut in Q4 FY25, with a change in policy stance by December 2024.

The progress of the southwest monsoon and the July budget will be critical inputs in the August policy.

- The RBI’s monetary policy committee (MPC) voted 4-2 to hold the repo rate at 6.

50% and maintain the policy stance as “withdrawal of accommodation.

” External MPC member Dr.

Ashima Goyal joined Professor Jayanth Varma in voting for a 25 basis points cut; both also voted to change the stance to neutral.

- Despite two dissenting votes, the MPC statement was relatively balanced, as reflected in Governor Das’s rhetoric.

While noting that inflation continues to moderate due to favorable core and fuel prices, the governor emphasized the need to remain vigilant on food prices and the work remaining to be done.

- Governor Das also highlighted rising international prices of industrial metals, which could exacerbate domestic input cost conditions.

On the other hand, the central bank’s confidence in growth seems to have increased, providing greater elbow room to pursue price stability.

- The RBI’s focus remains on navigating the last mile of disinflation.

The governor highlighted the degree of disinflation already achieved without hurting growth but emphasized the commitment to align inflation with the 4% target, as sustained price stability helps achieve stronger growth for a prolonged period.

- The UPI Lite has a daily limit of ₹2,000, while the upper limit for a single payment is ₹500.

The RBI engaged with outliers and took corrective action where deficiencies were found.

- Deputy Governor Swaminathan stated that there is no ideal credit-deposit ratio that can be prescribed.

If the credit-deposit gap widens, it can lead to liquidity risk.

The RBI has asked entities charging high-interest rates to justify them.

- The RBI is watchful on inflation, with the journey towards 4% being sticky.

No indication of rate cuts has been given.

After reaching the 4% level, inflation has to stay there for some time.

- Asset-liability mismatch is a concern flagged by the RBI, and it is up to the respective boards to plan and manage it.

The RBI stands committed to maintaining stability and orderliness in all segments of the financial markets and institutions regulated by it.

- The growth-inflation balance is evolving as per projections.

Headline CPI inflation is moderating, but the last mile of disinflation is sticky.

- The RBI’s latest monetary policy decisions are set to significantly benefit MSMEs by maintaining the repo rate at 6.

5% and projecting robust GDP growth of 7.

2% for FY25.

This reflects strong domestic demand and favorable economic conditions, offering MSMEs expanded market opportunities and financial stability.

- The RBI’s push for digital payments includes integrating UPI Lite into the e-mandate framework to facilitate small-value transactions and allow automatic wallet replenishment when balances fall below set thresholds.

This will boost digital payments and reduce transaction costs, enhancing operational efficiency and cash flow management for MSMEs.

- The RBI’s policy update provides a stable and supportive outlook for MSMEs and NBFCs.

By maintaining the repo rate and projecting higher growth, the RBI reinforces its commitment to fostering a balanced and resilient economic environment.

This sets a strong foundation for continued economic development and financial stability, crucial for the growth and success of MSMEs and the broader financial sector.

- Two external MPC members voted for a cut versus one MPC member earlier, suggesting growing divergence within the MPC.

However, this is not seen as a signal of an impending cut, as the RBI MPC members will have to pivot to swing the needle.

- The RBI continues to see the macroeconomic outlook as one of goldilocks, with higher growth and stable inflation.

The transition from El Nino to La Nina after June should bode well for food price inflation.

With lower wage growth and inflation expectations in check, headline inflation is expected to converge with core inflation and average 4.

4% in FY25.

- The RBI does not have to follow the Fed.

India has a large cushion of FX reserves, allowing it to follow an independent monetary policy by focusing on domestic considerations.

With growth still strong and uncertainties high both globally and locally, there is no immediate need for policy easing.

However, as inflation settles closer to the target and real rates rise further, room for easing is expected to open up, with the first rate cut expected in October and 75 basis points in cumulative easing in FY25.

- The RBI governor decided to buck the trend and stayed away from rate cuts like its counterparts in the ECB and the Central Bank of Canada.

The governor emphasized that the RBI is not going to follow the footsteps of the Fed and prefers to play the game according to domestic conditions.

- The RBI concluded the policy without any rate cuts and emphasized its commitment to bringing inflation down to the target of 4%.

Bond yields and stock markets did not react much as everything the governor said and did was on expected lines.

- Anshuman Magazine, Chairman & CEO-India, South-East Asia, Middle East & Africa, CBRE, on the RBI’s repo rate announcement: The RBI’s decision to retain the repo rate at 6.

50% signifies a continuity of cautious monetary policy.

This prioritizes achieving an equilibrium between curbing inflationary pressures and nurturing a robust economic environment.

Maintaining the status quo of the repo rate is likely to ensure sustained momentum within the real estate sector, benefiting borrowers.

Furthermore, the policy decision is expected to contribute to a broader affirmation of consumer confidence.

- The status quo from the MPC was on expected lines, with only the voting change on the stance to 4:2 posing a surprise.

Despite this, the 10-year G-sec yield remained above 7%, with the actual start to the rate cut cycle appearing distant.

- The RBI’s decision to maintain its current policy rates amidst volatile food prices, ongoing geopolitical tensions, and the Federal Reserve’s extended pause on interest rates is welcomed.

Looking ahead, it is crucial for the RBI to continue monitoring the evolving economic landscape, particularly in the aftermath of the Lok Sabha elections and the upcoming Union Budget.

The policies and fiscal measures introduced next month will play a significant role in shaping the trajectory of the economy.

A balanced and forward-looking approach will be essential to support sustained growth and stability in the real estate sector and the broader economy.

The RBI, with its vigilant and adaptive stance, is expected to foster an environment conducive to economic resilience and development.

- In its 2nd monetary policy for FY25, the RBI maintained the policy rate at 6.

5% as expected and maintained the withdrawal of accommodation.

The key takeaways are: - A shift in the voting pattern from 5-1 to 4-2 (Dr.

Ashima Goyal and Prof.

Jayant Varma are likely the dissenters).

- An upward revision in growth for FY25 to 7.

2% from 7.

0% while keeping inflation unchanged at 4.

5% for the year.

- The key reason for maintaining the policy rate is the uncertainty on the outlook of domestic inflation led by the food side.

While core inflation is encouraging and at the lowest level in the current series, food inflation is playing spoilsport, requiring vigilance.

Additionally, the crude outlook remains uncertain.

External factors are also watched to see the impact on domestic inflation.

- The Indian economy is at an inflection point with inflation on the right track but work to be done.

The watch is from the global side with global last-mile inflation remaining arduous and geopolitical risks.

With growth remaining firm, monetary policy has elbow room to focus on price stability.

The growth revision reiterates that the RBI is willing to wait and watch – the RBI can watch for longer.

The RBI has the trinity of patience, perseverance, and poise to support the economy.

- The mix of strong growth and above-target inflation does not make a case for a shift to a less restrictive policy setting yet, validating the view that rate easing is not on the cards this year.

Political developments are not expected to sway the monetary policy direction or outlook.

- Radhika Rao, Executive Director and Senior Economist, DBS Bank, and Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said