The Reserve Bank of India (RBI) wrapped up its Monetary Policy Committee (MPC) meeting in February 2024, making important announcements for the year ahead. The RBI decided to keep the key lending rate, known as the repo rate, unchanged at 6.5%. This move is part of a bigger plan to guide the Indian economy through its current phase of growth and handle inflation.
Looking forward, the RBI expects the economy to grow at 7% in the financial year 2025, a slight drop from this year’s 7.3%. It also predicts that the cost of living increase, measured by retail inflation, will average 5.4% this year and then go down to 4.5% next year. The MPC mentioned that there are still some challenges in making sure the effects of its policy decisions are fully felt by financial institutions.
Despite these challenges, the RBI has a positive view of the economy’s future. It believes that factors like better crop sowing, steady profits in manufacturing, and a strong services sector will help the economy. There are also signs that private companies are starting to spend more on expanding their businesses, which shows the economy is moving in the right direction.
The RBI also noted that the government is working on managing its finances better, and the overall economic activity in the country is strong. However, it warned about the risks of uncertain food prices and the effects of rising tensions around the world on inflation and the cost of goods.
Following the RBI’s decision to keep interest rates the same, the stock market reacted. The Nifty 50 index fell by about 1%, reaching a new low of 21,709 during the day, and the Sensex dropped by nearly 750 points to a low of 71,405. This shows the tricky balance the RBI is trying to maintain between encouraging economic growth and keeping inflation in check.
The RBI also shared plans to make it easier to carry out transactions in places with poor internet by introducing offline functionality for the digital version of the Indian currency. It is also looking at changing rules to allow better access to foreign electronic trading platforms that offer products in Indian rupees.
With the next MPC meeting scheduled for April 3-5, 2024, everyone will be closely watching the RBI’s next steps in guiding the Indian economy towards continuous growth and stability.
