The Reserve Bank of India (RBI) is predicted to stay divergent among global central banks, maintaining the status quo on policy till late FY25. According to SBI Capital Market's recent study on domestic drivers, named 'EcoCapsule', India's real growth projection for FY25 remains fair at 7% year on year (YoY), even as global growth momentum began to wane in August 2024 as most central banks slashed interest rates.

The RBI's previous bi-monthly monetary policy committee (MPC) meeting on August 8 agreed to leave the benchmark interest rate (repo rate) steady at 6.5 percent, citing inflationary concerns. However, MPC members Dr. Ashima Goyal and Prof. Jayanth R. Varma voted to lower the repo rate by 25 basis points and shift the attitude to neutral. For the ninth time in a row, the remaining four members decided to keep the policy rate unchanged.

How does the RBI differ from central banks?

Early indicators in the United States, such as growing unemployment claims and falling housing sales, pointed to a downturn. China is likewise facing issues, with manufacturing sectors under strain and housing stimulus efforts failing. Meanwhile, inflation has significantly decreased, as seen by a drop in crude oil prices due to concerns about demand.

As a result, the global environment has altered significantly in favor of policy ease. The US Fed Chair Powell has affirmed a rate decrease in September 2024, with the market anticipating approximately 100 basis points of cuts in CY24. The European Central Bank (ECB) and the Bank of England (BoE) are expected to follow suit in an effort to rescue Europe from economic gloom. According to SBI Caps, India's nominal GDP is expected to expand at around 10.5% YoY in FY25.

RBI's Current Monetary Policies

The central bank's rate-setting panel stated in its minutes that policy must remain disinflationary until headline inflation is consistently aligned with the target. The RBI's rate-setting panel anticipates that food prices would continue high, potentially causing negative spillovers to core inflation.

The MPC anticipates domestic growth to continue on the back of strong investment demand, stable urban consumption, and rising rural demand. The MPC also noted that core inflation appeared to be bottoming out. It also stated that unfavorable climate events remain an upside risk to food inflation, and crude oil prices are volatile due to demand worries and geopolitical tensions.