Reserve Bank of India Forecasts 7% GDP Growth for FY25, CPI Expected at 4.5%

GDP

The latest updates from the RBI Monetary Policy Committee (MPC) shed light on the economic outlook for the fiscal year 2025, emphasizing a projected 7% growth in Gross Domestic Product (GDP) and a Consumer Price Index (CPI) of 4.5%.

Key Highlights from the RBI MPC Meeting

Economic Growth Prospects

Governor Shaktikanta Das reiterated the importance of monitoring food prices, particularly amidst forecasts of elevated temperatures between April and June. Additionally, he emphasized the anticipated impact of declining fuel prices on inflation in the forthcoming months.

Policy Decisions

The MPC, convening on April 5, opted to maintain the policy rate unchanged for the seventh consecutive time, demonstrating a steadfast commitment to managing potential risks to food inflation.

Rate Adjustment History

Following a series of six successive rate hikes, totaling 250 basis points since May 2022, the rate hike cycle was halted in April of the previous year. The announcement of the first bi-monthly monetary policy for FY25 saw the MPC voting to retain the repo rate at 6.5% by a majority of 5:1.

Inflation Outlook

The RBI’s inflation projection for the current fiscal year stands at 4.5%, a decrease from the 5.4% recorded in the previous fiscal year. Assuming normal monsoon conditions, CPI inflation for the current year is estimated at 4.5%, with quarterly projections as follows: Q1 – 4.9%, Q2 – 3.8%, Q3 – 4.6%, and Q4 – 4.5%.

Governor Das’ Insights

Governor Das underscored the MPC’s unwavering commitment to aligning inflation with the RBI’s target of 4%. He also highlighted the potential spillover effects of the high global debt-to-GDP ratio on emerging economies, urging vigilance in this regard.

Economic Indicators

Rural demand is on the rise, with consumption expected to bolster economic growth in FY25. Furthermore, moderating inflationary pressures and sustained growth in the manufacturing and services sectors are anticipated to stimulate private investment.

Global Economic Landscape

Despite geopolitical tensions and fluctuations in crude oil prices, global growth remains resilient. However, the recent uptick in crude oil prices necessitates close monitoring due to its potential impact on inflation.

Monetary Policy Initiatives

Governor Das affirmed the RBI’s commitment to maintaining liquidity management flexibility and ensuring enduring price stability. Efforts to bolster forex reserves were highlighted, with India’s reserves reaching an all-time high of $645.6 billion as of March 29.

Regulatory Measures

Various regulatory measures were proposed, including permitting cash deposits through UPI, allowing small finance banks to utilize interest rate futures for proprietary hedging, and facilitating the trading of sovereign green bonds at International Financial Services Centre.

Future Directions

Looking ahead, Governor Das expressed optimism about the upcoming decade, characterizing it as a transformational journey as the RBI approaches its centenary. Plans to enhance payment system operations, including the use of third-party apps for UPI-based transactions and the distribution of Central Bank Digital Currency (CBDC), were also outlined.

In conclusion, the RBI’s MPC meeting highlights underscore the institution’s proactive approach to managing economic challenges while fostering sustainable growth and stability.

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