New Delhi: The Reserve Bank of India (RBI) has revised its estimate of economic growth to 7.2 percent in the current financial year from its earlier estimate of 7 percent.
The central bank’s monetary policy committee Friday also decided to keep the benchmark interest rate unchanged at 6.5 percent, for the 8th consecutive time.
Notably, two of the six members of the RBI’s Monetary Policy Committee (MPC) dissented with the decision to keep interest rates unchanged. Jayant Varma and Ashima Goyal voted for a rate cut, RBI’s documents revealed. In April, only Jayant Varma had voted for a rate cut.
The decision to keep rates unchanged comes at a time when the European Central Bank announced Thursday that it would be cutting interest rates from 4 percent to 3.75 percent, the first such cut in about two years.
The central bank’s positive outlook for growth in the current financial year stems from a multi-sector buoyancy that is either ongoing or expected in the near future, depending on the sector.
“During 2024-25 so far, domestic economic activity has maintained resilience,” RBI governor Shaktikanta Das said while announcing the central bank’s decision. “Manufacturing activity continues to gain ground on the back of strengthening domestic demand.”
He further said the services sector remained buoyant with high-frequency indicators such as the purchasing managers’ index “indicating continued and robust expansion in activity”.
“Private consumption, the mainstay of aggregate demand, is recovering, with steady discretionary spending in urban areas,” Das added. “Revival in rural demand is getting a fillip from improving farm sector activity.”
The governor further said investment activity has continued to grow, while merchandise exports expanded in April with improving global demand.
Growth in the ongoing financial year is expected to be largely even at 7.3 percent in Q1, 7.2 percent in Q2, 7.3 percent in Q3, and 7.2 percent in Q4. GDP growth stood at 8.2 percent in 2023-24.
The fact that two members dissented against the overall decision to keep rates unchanged is an indication that a rate cut could be in the offing in the near future, according to some analysts.
“The MPC’s decision to keep policy rates unchanged, though expected, has a surprise element since two members out of six were in favour of rate cut,” said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services.
“Mr Jayant Varma was in favour of a rate cut in the last meeting too. This means the number of members in favour of a rate cut is increasing. So a rate cut is likely in the next meeting.”
Das said that while the committee took note of the slowdown in inflation achieved so far without hurting growth, it remained vigilant to any upside risks to inflation.
The governor added that, assuming a normal monsoon, the RBI projected inflation at 4.5 percent during 2024-25, with Q1 at 4.9 percent, Q2 at 3.8 percent, Q3 at 4.6 percent, and Q4 at 4.5 percent.
(Edited by Tikli Basu)