The Reserve Bank of India (RBI) has a group called the Monetary Policy Committee (MPC). On February 8, 2024, they decided to keep things the same regarding both policy rate and stance. This means they didn’t change the repo rate, which is at 6.5%, and they kept the stance focused on gradually reducing support to make sure inflation matches the target while still helping growth.
The rates for other things like Standing Deposit Facility (SDF), Marginal Standing Facility (MSF), and Cash Reserve Ratio (CRR) also stayed the same. However, one member from outside the RBI group wanted to lower the repo rate by 25 basis points (bps) and change the stance to neutral. Now, let’s look at how things are going with the economy:
Growth:
The world’s economy is in different shapes. There’s a chance things might slow down a bit with steady growth and inflation going down, but there are also more risks from issues between countries. In India, things are looking pretty good. Manufacturing and services are doing well, construction is active, and both local and global demand are keeping services strong. The RBI thinks India’s Gross Domestic Product (GDP) will grow by 7% in FY25, mainly because services and city spending are strong.
They also see good signs in rural areas, especially with farming-related jobs. Plus, more people are buying homes, the government is spending on projects, and companies are making good money, which all help with investments.
Inflation:
Prices for things we buy have gone down a bit this year, helped by fewer costs for basic things and fuel. But food prices, especially for vegetables, are still changing a lot and keeping the main inflation rate higher. It’s hard to say for sure what inflation will be like because things could change, especially with problems in how goods get to stores and how much things cost because of what’s happening between countries.
The RBI thinks inflation will stay around 5.4% for the year, but they think it might go down a bit more to 5% in the last part of the year. For the next year, they think it might go down to an average of 4.5%, if the weather is okay for farming.
Looking Ahead:
Most people thought the RBI wouldn’t change rates, but they were hoping for some help with money flow, which didn’t happen. The RBI said they would keep trying to make sure there’s enough money around using different ways. They also said they’re still working on making sure inflation stays low, but they know that banks haven’t fully lowered their rates yet. Even though some things didn’t change, experts think the money market will be okay for a while because:
The government won’t need to borrow too much, and more people want to buy Indian government bonds. Inflation is going down because prices for making things are lower, and people aren’t worried about prices going up too much. Big banks in other countries, like the US, might start lending more money soon, and the RBI might also lower rates later on. India’s money situation is pretty good because they have a lot of foreign money saved up, oil prices are staying the same, services are doing well, and more people might want to invest in India.
But there are still some things to be careful about: Banks have a lot of money saved up, and not many people want to borrow more, so they might not want to buy more government bonds. The RBI might keep rates higher if prices for food keep going up, other countries have money problems, or banks in other countries keep their rates high.
So, overall, experts think interest rates might go down later, and it’s a good time for people who want to invest for a long time to buy more long-term bonds. Also, since short-term rates are high now and might go down later, it could be smart to invest in short or medium-term bonds too.
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