The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) has decided to maintain the repo rate at 6.5% for the ninth consecutive time. This decision comes as the central bank continues to prioritize managing inflationary pressures while supporting economic growth.

Key highlights:

• Repo rate unchanged: The RBI’s benchmark lending rate remains steady at 6.5%.
• Inflation focus: The central bank’s primary concern is to anchor inflation expectations and bring inflation within the target range.
• Economic growth projection: The RBI has likely maintained or slightly revised upwards its GDP growth forecast for the current fiscal year.
• Liquidity management: The RBI may have provided guidance on liquidity conditions and measures to ensure smooth functioning of the financial system.

The RBI’s decision to hold the repo rate reflects its continued focus on managing inflationary pressures. The upward revision in inflation projections indicates the central bank’s cautious stance. The RBI has also introduced several measures to enhance the digital payment ecosystem and improve credit information sharing. These initiatives aim to strengthen the financial system and improve access to credit.

The RBI’s monetary policy stance suggests a careful balancing act between supporting growth and containing inflation. While the repo rate remains unchanged, future policy decisions will depend on the evolving economic and inflationary landscape.

China’s annual inflation rate decreased to 0.2% in June, down from 0.3% in the previous two months, and below market expectations of 0.4%. This slight dip indicates a continued easing of inflationary pressures in the world’s second-largest economy. Additionally, China’s producer prices fell by 0.8% year-on-year in June, aligning with market forecasts. This decline, however, shows an improvement from May’s 1.4% drop, suggesting some stabilization in producer costs.

In Japan, producer prices increased by 2.9% year-on-year in June, up from a revised 2.6% growth in the previous month. This rise is consistent with market estimates, reflecting ongoing cost pressures in the Japanese economy.

India’s Reserve Bank of India’s (RBI) financial inclusion index jumped to 64.2 in March 2024, up from 60.1 a year prior. This rise across all parameters indicates progress in making financial services accessible to a wider population.
However, challenges likely remain, as evidenced by RBI MPC member Ashima Goyal’s call for improved farm productivity and supply chains to combat food price volatility. The RBI’s variable rate repo auction on July 9, 2024, received bids worth Rs 21,310 crore, falling short of the notified amount of Rs 25,000 crore. This suggests the central bank is carefully managing liquidity in the Indian financial system.

Key highlights

• China’s inflation down to 0.2% in June, missing estimates of 0.4%
• China’s producer prices fell by 0.8% y-o-y in June, improving from a 1.4% decline in May
• Japan’s producer prices increased by 2.9% y-o-y in June, consistent with market expectations
• India’s FI index rose to 64.2 in March 2024 from 60.1 in March 2023
• Emphasis on improving farm productivity and supply chains; received Rs 21,310 crore bids at VRR auction against a notified amount of Rs 25,000 crore

The World Bank has revised its growth projections for the US economy, now anticipating a 2.5% growth rate in 2024, consistent with 2023 but significantly higher than the earlier estimate of 1.6%.

In its June 11 report, the World Bank maintained its GDP growth forecast for India at 6.6% for FY25. This follows an earlier adjustment in April, where India’s GDP growth projection was raised by 20 basis points to 6.6% for the current financial year. The global agency highlighted that India will continue to be the fastest-growing major economy, despite a slight moderation in its growth pace. After achieving high growth in 2023-24, India is projected to maintain steady growth of 6.7% annually on average over the next three fiscal years starting in 2024-25.

Key projections for India:

• FY25 GDP Growth: 6.6%
• FY26 GDP Growth: 6.7%
• FY27 GDP Growth: 6.8%

India’s GDP growth exceeded expectations, standing at 7.8% in the January-March quarter, although it was slightly slower than the 8.4% growth in the previous quarter. The full-year GDP growth for 2023-24 has been revised upwards to 8.2% from the second advance estimate of 7.6%, according to data from the Ministry of Statistics and Programme Implementation released on May 31.

The Reserve Bank of India anticipates a 7.2% growth rate for FY25.

Global economic outlook:

• Global GDP growth: 2.6% for 2024-25, 20 basis points higher than the January estimate
• FY26 & FY27 growth: Expected at 2.7%

The World Bank’s June 2024 Global Economic Prospects report indicates that global growth will stabilize at 2.6% this year, remaining steady for the first time in three years despite geopolitical tensions and high interest rates. Growth is projected to increase slightly to 2.7% in 2025-26, driven by modest improvements in trade and investment.

South Asia Region (SAR) forecast:

• 2024 GDP growth: 6.2%, down from 6.6% in 2023 due to India’s slower growth
• 2025-26 GDP growth: Expected to remain at 6.2%

Despite steady growth in India, the SAR region’s growth is expected to stay at 6.2% in 2025-26. Bangladesh’s growth will remain robust but slower than in recent years, while Pakistan and Sri Lanka are projected to strengthen. However, risks such as commodity market disruptions, fiscal consolidations, financial instability, severe weather events, and slower-than-expected growth in China and Europe pose significant threats to this outlook.

Inflation and Monetary policy:

• Global inflation: Expected to moderate, averaging 3.5% this year
• Central Bank policies: Likely to remain cautious, keeping interest rates about double the 2000-19 average

The World Bank notes that geopolitical tensions and trade fragmentation could disrupt global trade networks, with inflation persistence potentially delaying monetary easing. Conversely, quicker-than-expected global disinflation and stronger US economic performance are potential upside risks.