The Reserve Bank of India (RBI) will reveal its latest decisions on Friday at 10:00 am. This comes after a three-day meeting that started on December 4. For the first time in more than two years, the committee in charge of monetary policy will pay more attention to the slowing growth of the economy.
The RBI has kept its interest rate at 6.5% for the last ten meetings. They have been careful about inflation, especially because food prices have been high, but they remain hopeful about the economy bouncing back due to good rains and expected spending on infrastructure projects. Recently, they changed their view from “removing support” to a more neutral stance on the economy.
The central bank has a 7.2% growth forecast for the economy in the financial year 2024-25, but this has come under pressure after a big drop in growth seen in the last quarter. Some economists have lowered their growth expectations to 6%. High inflation, partly caused by changing food prices, has kept general prices at an elevated 6.2% in October. Because of this situation, the RBI may lower its growth forecast and increase its inflation expectations.
What to Expect?
With more people calling for interest rate cuts to help the economy, more members of the RBI committee are likely to support lowering rates. In the last meeting, one external member voted for a small cut in the interest rate, and analysts expect at least two more members to agree this time.
The availability of money in the banking system has dropped significantly, making it likely that the RBI will lower the required reserves that banks must hold. Initially, there was about ₹4.5 trillion in September, but it has now dropped to just ₹1.2 trillion. Because of this tight situation, economists expect the RBI to take action with longer-term loans.
The future of RBI Governor Shaktikanta Das is also important, as his term ends on December 10, and it is unclear if he will stay or be replaced.
Outcomes from the Last Meeting
At the last meeting on October 9, the RBI kept the interest rate at 6.5% with a majority of votes. They wanted to balance keeping prices in check while helping the economy grow. Their growth forecast stayed at 7.2% for the upcoming financial year, with predictions showing steady growth throughout.
Inflation was projected at 4.5%, with expectations of slight increases in the coming quarters. Meanwhile, the Indian rupee has been stable compared to other currencies.
In other news, the RBI increased limits for UPI transactions to make digital payments easier. They also introduced a new feature for account lookups to prevent mistakes in money transfers. Governor Das emphasized that banks should be careful about their financial exposures.
Foreign investment has shown positive signs, but India’s current account deficit has widened. The RBI also allowed individuals taking floating-rate loans to avoid pre-payment penalties and is looking into new funding options for Urban Cooperative Banks.
Finally, the RBI is launching a new system to help banks manage risks related to climate change
