The Reserve Bank of India (RBI) Governor delivered a well-balanced policy, aligning largely with the market expectations. RBI’s GDP growth projection of 7% for FY25 is quite bullish and reflects the Central Bank’s confidence in sustenance of the growth trajectory. While overall inflation is projected at average of 4.5% for FY25, it is important to note that the disinflationary trend is not being sustained, with marginal increase in inflation in the third and fourth quarter of FY25. The RBI has maintained the stance as ‘withdrawal of accommodation’ while reiterating its objective of achieving 4% inflation target on a durable basis and the need for further transmission of policy rate cuts by the banks.
Going forward, we feel that RBI would remain cautious given the risk posed by high food inflation. Healthy economic growth gives room to the Central Bank to maintain status quo for some more time. However, in the second half of the year, as domestic inflationary concerns recede and the US Fed starts cutting rates, we can expect a shallow rate cut by RBI. On the liquidity front, RBI will continue to intervene through appropriate tools as required.
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