The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on October 9 said, ‘Resilient growth gives us the space to focus on inflation so as to ensure its durable descent to the 4 per cent target’
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The Reserve Bank of India (RBI)’s new six-member Monetary Policy Committee (MPC) on Wednesday expressed confidence in India’s ‘resilient’ growth story.
After assessing the evolving macroeconomic and financial conditions and the outlook, during three-day meeting, the MPC on October 9 kept the repo rate unchanged at 6.50 per cent. The committee also unanimously decided to change the stance to ‘neutral’ and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.
During the meeting, the MPC noted that the domestic growth has sustained its momentum, with private consumption and investment growing in sync.
“Resilient growth gives us the space to focus on inflation so as to ensure its durable descent to the 4 per cent target,” the RBI MPC said, adding that in such a situation, it has decided to remain “watchful of the evolving inflation outlook” in the coming months.
The MPC said that considering the prevailing inflation and growth conditions as well as the outlook, it has decided to change the stance to ‘neutral’ and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.
14 reasons for RBI’s confidence in India’s ‘resilient’ growth story
1 – In the first quarter (Q1) of financial year 2024-25, the real gross domestic product (GDP) grew by 6.7 per cent, led by a revival in private consumption and improvement in investment. The share of investment in GDP reached its highest since 2012-13.
2 – The Q1 of 2024-25 also saw a contraction in Government expenditure.
3 – Gross value added (GVA) expanded by 6.8 per cent surpassing GDP growth, getting fillip from strong industrial and services sector activities.
4 – RBI said high frequency indicators available so far suggest that domestic economic activity continues to be steady. The main components from the supply side – agriculture, manufacturing and services – remain resilient.
5 – Agricultural growth has been supported by above normal south-west monsoon rainfall and better kharif sowing. Higher reservoir levels with good moisture conditions of soil augur well for the ensuing rabi crop.
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6 – Manufacturing activity is gaining due to improving domestic demand, lower input costs and a supportive policy environment.
7 – The purchasing managers’ index (PMI) for manufacturing at 56.5 for September remained elevated.
8 – The services sector continues to grow at a strong pace. PMI services at 57.7 in September indicates robust expansion, the RBI said.
9 – The MPC also noted that the rural demand is trending upwards, while urban demand continues to hold firm.
10 – Government consumption is improving. Investment activity remains buoyant, with government capex rebounding from a contraction observed in the first quarter.
11 – Private investment continues to gain steam on the back of expansion in non-food bank credit, higher capacity utilisation and rising investment intentions. On the external front, services exports are supporting overall growth, the RBI said.
12 – “Looking ahead, India’s growth story remains intact as its fundamental drivers – consumption and investment demand – are gaining momentum. Prospects of private consumption, the mainstay of aggregate demand, look bright on the back of improved agricultural outlook and rural demand,” the RBI MPC said.
13 – It further said that sustained buoyancy in services would also help support urban demand.
14 – The RBI also stated that government expenditure of the centre and the states is expected to pick up pace in line with the Budget Estimates. Investment activity would benefit from consumer and business optimism, government’s continued thrust on capex and healthy balance sheets of banks and corporates.