Economy News

According to the minutes of the latest Monetary Policy Committee Meeting, RBI Governor Sanjay Malhotra noted that headline inflation, after moving above the upper tolerance band in October, has moderated in November and December. Going forward, food inflation pressures are likely to see significant easing on robust kharif harvest arrivals, winter season correction of vegetables prices and a promising rabi crop outlook. The food inflation outlook is turning decisively positive. Moreover, the budget proposals on agriculture and the commitment to fiscal consolidation, among others, are positive for price stability and would help to anchor inflation expectations over the medium term. These would provide greater impetus to disinflation of headline CPI and its eventual alignment with the target rate in FY 2025-26. CPI inflation for Q4 is projected at 4.2 per cent and that for the financial year 2025-26 at 4.2 per cent. He highlighted that the real GDP growth for the current year is estimated at 6.4 per cent, a softer expansion after a robust 8.2 per cent growth last year. Even though, the GDP growth is expected to recover in the second half of 2024-25 and 2025-26 from 6.0 per cent recorded in the first half of 2024-25, the growth rate projected by various forecasts for 2025-26 vary from 6.3 to 6.8 per cent. This will be supported by healthy rabi prospects and an expected recovery in industrial activity. From the demand side, consumption and investment are also expected to improve. According to Malhotra, Given the macroeconomic outlook when inflation is expected to align with the target, and recognising that monetary policy is forward-looking, he views a lower policy rate to be more appropriate at the current juncture and therefore voted for a reduction in the repo rate by 25 basis points. Monetary policy easing, coupled with good agricultural sector growth and various growth supportive measures in the Union Budget, would boost household consumption, investment in housing, capital expenditure, etc thereby strengthening the pick-up in aggregate demand.

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