New Delhi: Central banks are constantly adapting to a new landscape created by geopolitical occurrences, said RBI governor Shaktikanta Das during his monetary policy announcement speech on Friday. The last mile of inflation easing turned out to be arduous, he added. RBI continued to rely on buffer creation even as the economy continued its journey on a sustained path towards progress, Das said, adding that India is well positioned to pursue its transformative journey.
The MPC decided to keep the policy repo rate unchanged at 6.5 per cent with a majority of 4:2. The committee continued to maintain a neutral stance while supporting growth. Amid the recent slowdown in growth momentum, the growth forecast was revised downwards but resilient. As inflation surged higher in October led by a sharp uptick in food inflation. This is likely to remain the trend until the end of Q3FY25, added Das. While weather, geopolitics and stock market volatility posed risks to economic growth, the MPC is committed to restore the inflation growth balance in the overall interest of the economy, he added.
Global economy view
Global trade is resilient as growth also showed an uptick, said Das. However, a stronger dollar and rising bond yields have hurt emerging economies. He also hinted at the spectre of protectionism posed by the incoming Trump administration which is likely to increase volatility.
Domestic economy view
Das noted the decline in manufacturing sector activity owing to a decline in specific sectors such as petroleum, iron and steel, and cement. However, this is likely to change with the expected revamp in government spending post-monsoon. PMI manufacturing for November remained elevated with an easing of supply chain pressures. Services PMI remained steady in November, indicating continued expansion, said the RBI governor.
Merchandise and Services sector growth remained in expansion mode in October, Das noted. RBI revised the GDP forecast for FY25 to 6.6 per cent. Here are the quarterly estimates going forward:
Q3: 6.8 per cent
Q4: 7.2 per cent
Q1FY26: 6.9 per cent
Q2FY26: 7.3 per cent
Speaking on inflation, Das said an upbeat Rabi output outlook could be a major decider for food prices and headline inflation going forward. While the overall FY25 inflation forecast is 4.8 per cent, here are the quarterly inflation forecast numbers according to RBI:
Q3: 5.7 per cent
Q4: 4.5 per cent
Q1FY26: 4.6 per cent
Q2FY26: 4 per cent
Liquidity and forex management
RBI to reduce CRR of all commercial banks to 4 per cent of NDTL — the prevailing rate before the start of policy tightening, said Das. This is expected to increase banking sector liquidity by Rs 1.16 lakh crore, said Das.
Rupee depreciation remained lower than peers, indicating the strength of the Indian rupee, said Das. RBI continued to deploy forex reserves to mitigate any volatility, he added. Overall, RBI’s approach ensures that forex reserves act as shock absorbers against global spillovers.
Banking sector update
RBI governor Das said the financial sector was in the pink of health with any signs of stress are monitored closely by the central bank. RBI continued to monitor the mule accounts to check pilferage of government benefits, added Das.
FCNR B deposits of 1-3 year maturities at rates of overnight ARR + 400 bps will be allowed to banks, to encourage investment, Das announced. This relaxation is available util March 31, 2025.
Additional measures
FX retail platform o be linked to NPCI BharatConnect platform expanding reach of platform.
Secured overnight rupee rate benchmark for secured money markets
Connect to regulate initiative under RBI@90 events for stakeholders to share ideas and inputs on specific topics
RBI podcasts for better communication
Collateral free agricultural loan ceiling enhanced
Small finance banks to offer UPI credit facility
AI deployment in financial sector
Mulehunter.ai
RBI Governor Speech Highlights: Reserve Bank of India governor Shaktikanta Das in his speech clarified that the central bank was committed to targeting inflation which affects every section of society. While maintaining an upbeat outlook on the economy, Das said that food inflation may continue to hurt consumers in Q3. Economy Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
