In a move broadly in line with market expectations, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) announced its decision to maintain the repo rate at 6.5% during its October 9 meeting. However, the central bank shifted its policy stance from “withdrawal of accommodation” to “neutral,” indicating a more flexible approach moving forward. This change comes as the RBI continues to express concern over inflationary pressures, particularly in light of rising fuel prices and unfavorable base effects.

Despite retaining its GDP growth and inflation estimates for FY25, the RBI highlighted the risks of sticky inflation. Governor Shaktikanta Das emphasized that while inflation has shown signs of moderation in recent months, the central bank remains cautious. “The inflation horse has been brought to the stable within the tolerance band. However, we must be careful about opening the gate,” said Das, indicating that inflation could still pose challenges in the near term.

The RBI expects the Consumer Price Index (CPI) for September to rise due to unfavorable base effects and a spike in fuel prices. While the overall inflation projection for FY25 remains unchanged at 4.5%, the RBI revised its quarterly estimates. The central bank cut the Q2FY25 CPI forecast to 4.1% from 4.4%, raised Q3 estimates to 4.8%, and made slight downward revisions for Q4FY25 and Q1FY26.

The RBI maintained its GDP growth projection for FY25 at 7.2%, signaling continued optimism about the Indian economy’s resilience. However, the central bank trimmed its Q2FY25 growth forecast to 7%, citing potential headwinds. It offset this by raising the growth outlook for the latter half of the fiscal year and Q1FY26, with projections of 7.4% for Q3 and Q4FY25 and 7.3% for Q1FY26.

While these adjustments suggest a mixed outlook, the overall trajectory remains positive, reflecting the central bank’s confidence in the economy’s ability to withstand inflationary pressures and external shocks. The shift to a “neutral” policy stance, agreed upon by all six MPC members, provides the RBI with greater flexibility to respond to evolving economic conditions. However, the lack of downward revision in growth and inflation estimates suggests that any immediate move towards rate cuts remains unlikely.

The RBI’s decision to maintain the repo rate at 6.5% stands in contrast to the US Federal Reserve’s recent rate cuts. In September, the Fed slashed rates by 50 basis points, with further reductions expected in November and December. Despite these global trends, the RBI has chosen to prioritize domestic economic stability and inflation control over following the US lead in monetary easing.
In addition to its monetary policy decisions, the RBI announced several initiatives aimed at enhancing financial inclusion. The central bank proposed raising the per-transaction limit for UPI 1 2 3 Pay from ₹5,000 to ₹10,000 and increasing the UPI Lite wallet limit from ₹2,000 to ₹5,000. The per-transaction limit for UPI Lite was also raised from ₹100 to ₹500, further promoting the use of digital payment systems.

Governor Das also addressed concerns about potential stress buildup in the unsecured lending segment, particularly in loans for consumption purposes, microfinance, and credit cards. The RBI is closely monitoring these sectors and emphasized the need for banks and NBFCs to maintain robust underwriting standards and monitoring practices.

The RBI’s decision to hold repo rates steady while shifting to a “neutral” stance reflects a delicate balancing act between controlling inflation and supporting economic growth. With inflation risks still on the horizon and global uncertainties persisting, the central bank has kept its options open, signaling that it will remain vigilant and responsive to changing conditions. For businesses and consumers, this means continued stability in borrowing costs for now, but with a cautious eye on potential inflationary pressures.

Home loan borrowers hoping for a reduction in their EMIs may need to be patient, as economists predict that the Reserve Bank of India (RBI) is unlikely to announce a rate cut in its upcoming bi-monthly credit policy on October 9. Instead, the central bank is expected to introduce rate cuts in December 2024 and February 2025, according to economic forecasts. The RBI’s repo rate has remained steady at 6.5% since February 2023, and although a rate cut is anticipated, it will not come immediately.

Economists predict that the RBI may opt for a 50-basis point (bps) reduction in two phases—25 bps each in December 2024 and February 2025. This gradual approach is in line with global monetary easing trends, where central banks such as the US Federal Reserve, European Central Bank (ECB), and others have already reduced interest rates. Chief Economist at ICRA, believes that while the RBI may keep rates unchanged in October, it could change its stance from “withdrawal of accommodation” to “neutral.” This shift could pave the way for future rate cuts, depending on inflation trends and global economic conditions.

Given that home loan interest rates are directly linked to the RBI’s repo rate since October 2019, a rate cut will directly impact home loan borrowers. If the repo rate is reduced by 50 bps as predicted, borrowers can expect lower EMIs or shorter loan tenures, depending on their preferences.

For instance, if a borrower has taken a ₹75 lakh home loan payable over 20 years at a 9% interest rate and the rate drops to 8.75% after 36 months, the total repayment amount would fall from ₹1.62 crore to ₹1.57 crore. This change could save the borrower around ₹4.97 lakh and shorten the loan tenure by seven months. If the rate cut is more substantial, such as a 50 bps reduction to 8.5%, the total repayment would drop to ₹1.51 crore, saving the borrower ₹11 lakh and shortening the loan term by 16 months.

Nationalized banks are expected to pass on the benefits of a repo rate cut immediately, while private banks may take longer—typically implementing the cut at the start of the following month or quarter, depending on the loan agreement. Borrowers with floating rate loans will have the option to either lower their EMIs or maintain their current EMIs and reduce the loan tenure.
In a declining interest rate environment, borrowers can also consider refinancing their home loans with lenders offering lower interest rates. This can help borrowers take advantage of better deals and minimize their overall repayment costs.

Home loan borrowers in India may have to wait until December for any significant reduction in their EMIs, the prospects of repo rate cuts in late 2024 and early 2025 offer potential relief. With expectations of a 50-bps rate cut, borrowers can look forward to saving on interest payments or shortening their loan tenures. However, immediate action is unlikely, with the RBI expected to keep its rates steady in the upcoming October policy review.

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 Reserve Bank of India (RBI) held its first Monetary Policy Committee (MPC) meeting since the Lok Sabha Elections 2024. In a significant move, the RBI decided to keep the repo rate unchanged at 6.5% for the eighth consecutive time. The last change in the benchmark interest rate was made in February 2023. Here are the key highlights and outcomes from the RBI MPC Meeting in June 2024.

Key highlights of RBI MPC meeting June 2024

Repo rate unchanged:

The key interest rate (repo rate) remains steady at 6.5%. This decision marks the eighth consecutive time the RBI has held the rate.

Focus on inflation control:

The RBI emphasized the need to withdraw its accommodative monetary policy stance to curb inflationary pressures.

Growth projection upgraded:

The real GDP growth forecast for FY25 has been revised upwards to 7.2% from the previous 7%.

Inflation forecast maintained:

The inflation forecast for FY25 is retained at 4.5%, with food inflation still a significant concern.

Current account deficit:

The current account deficit for FY25 is expected to remain within sustainable levels, ensuring economic stability.

Foreign exchange reserves:

India’s foreign exchange reserves have reached a new high of $651.5 billion as of May 31, 2024.

Bulk deposit threshold raised:

The threshold for bulk deposits has been increased from ₹2 crore to ₹3 crore.

Rationalisation of export and import regulations:

The RBI plans to rationalize export and import regulations under the Foreign Exchange Management Act (FEMA) to streamline trade processes.

Digital payments intelligence platform:

A new Digital Payments Intelligence Platform will be established to leverage advanced technologies for mitigating payment fraud risks.

Auto replenishment of digital wallets:

The RBI has brought the auto replenishment of balance Fastag, NCMC, and UPI-Lite wallets under the e-mandate framework to enhance convenience and security.

The RBI’s decision to keep the repo rate unchanged at 6.5% underscores its focus on balancing growth and inflation. With an upgraded GDP growth projection and maintained inflation forecast, the central bank aims to foster economic stability while addressing inflationary challenges. The upcoming initiatives, including the Digital Payments Intelligence Platform and changes in the bulk deposit threshold, reflect the RBI’s commitment to modernizing and securing India’s financial ecosystem. The next monetary policy announcement is scheduled for August 8.

The Indian stock market benchmarks, Sensex and Nifty 50, extended their gains into the third consecutive session, ending at fresh closing highs on Friday, June 7, following the Reserve Bank of India’s decision to maintain the repo rates and policy stance while revising the GDP estimates for FY25 upwards. Despite a significant 6% loss on June 4, market benchmarks have recorded substantial gains in June. The Sensex is up about 3.7%, and the Nifty 50 has gained nearly 3.4% in the first week of June.

During the session, the Sensex reached a new all-time high of 76,795.31 before closing 1,619 points, or 2.16%, higher at 76,693.36, with all components in the green. The Nifty 50 ended 469 points, or 2.05%, higher at 23,290.15, with only SBI Life (down 1.03%) and Tata Consumer (down 0.43%) in the red. Additionally, the BSE Midcap index rose by 1.28%, while the smallcap index saw a gain of 2.18%. The overall market capitalization of firms listed on the BSE surged to nearly ₹423.4 lakh crore from ₹415.9 lakh crore in the previous session, making investors richer by about ₹7.5 lakh crore in a single session.

Key factors boosting the stock market:

RBI raises growth forecast:

The RBI increased its GDP growth forecast for FY25 to 7.2% from 7%. The central bank anticipates an above-normal monsoon and buoyancy in services activity to drive rural and urban consumption, boosting the domestic economy. This positive outlook has significantly influenced market sentiment. The RBI projected real GDP growth for FY25 at 7.2%, with quarterly growth rates around 7.2% to 7.3%.

Easing inflation fears:

The RBI expects inflation to moderate due to an above-normal monsoon and stable crude oil prices. Governor Shaktikanta Das projected CPI inflation for FY25 at 4.5%, assuming a normal monsoon, which bodes well for the kharif season. The timely arrival of monsoon rains and expectations of a widespread distribution also contribute to easing inflation concerns, further boosting investor confidence.

Rate cut hopes:

Experts believe the RBI may begin rate cuts sooner than anticipated, as indicated by the split voting pattern within the six-member MPC. This sentiment aligns with global trends, as major economies, including the European Central Bank, have started adjusting key rates. This potential for rate cuts is seen as a positive driver for the market.

Political stability and policy continuity:

The BJP-led NDA coalition’s formation of a new government under Prime Minister Narendra Modi promises political stability and policy continuity. Modi’s commitment to a pro-development agenda and anticipated reforms are expected to drive further market gains. The assurance of stability within the coalition government has fueled a broad-based rally in the domestic market, pushing the Indian market to new highs.

Technical factors:

Market experts highlight a positive short-term formation, though temporary overbought conditions could lead to range-bound activity at higher levels. Key support zones are identified at 23,000-22,800/75,500-74,900, with resistance areas at 23,500-23,700/75,200-75,800. Short-term traders are advised to adopt a strategy of buying on dips and selling on rallies.

Indian stock market’s recent performance reflects a combination of positive economic forecasts, easing inflation fears, potential rate cuts, political stability, and favorable technical conditions. Investors remain optimistic about continued growth and stability in the market.

India is experiencing a surge of positive economic indicators. The Reserve Bank of India (RBI) reported a record high of USD 645.6 billion in foreign exchange reserves as of March 29, 2024, reflecting a USD 2.9 billion increase and India’s strong financial position. This is bolstered by rising consumer confidence, with the Future Expectations Index (FEI) reaching its highest level since mid-2019 at 125.2. This 2.1 point increase in March indicates optimism among Indian consumers about the upcoming year, signifying a potential boost in domestic spending.

Furthermore, India is making significant strides in renewable energy. The Ministry of Power has ambitious plans to increase hydropower capacity by an impressive 50% to 67 GW by FY32. This initiative highlights India’s commitment to clean energy and sustainable development goals.

The United States also witnessed robust economic performance in March 2024. The US economy added a staggering 303,000 new jobs, exceeding expectations and marking the highest job growth in ten months. This surpasses the downwardly revised February figure of 270,000 and surpasses initial forecasts of only 200,000 new jobs. The unemployment rate also dipped to 3.8%, down from the previous month’s two-year high of 3.9%. This decline signifies a strengthening US labor market with ample employment opportunities.

However, the Eurozone faced a minor setback with retail sales declining by 0.5% month-on-month in February 2024. This follows a period of stagnation in January and is slightly worse than the anticipated 0.4% drop. Despite this temporary downturn, efforts to stimulate consumer spending are likely underway within the region.

The economic developments in India and the US paint a picture of optimism and resilience. India’s record forex reserves, rising consumer confidence, and focus on renewable energy position the nation for continued growth. The US job market’s impressive performance and declining unemployment rate indicate a robust and recovering economy. While the Eurozone faces a short-term retail sales decline, efforts are likely being made to address this challenge. These trends suggest a positive outlook for global economic stability in the coming months.

The yield on the benchmark 10-year government bond surged to a two-month high on Monday, reaching 7.15 percent, tracking the upward movement in US Treasury yields. This rise marked an increase from the previous Friday’s yield of 7.12 percent. Throughout April, the yield on the 10-year benchmark government bond has witnessed a hardening trend, rising by 10 basis points (bps).

Market experts attribute this increase in yields to the global trend of rising rates, particularly in the US. Naveen Singh, Vice President of ICICI Securities Primary Dealership, noted that India cannot remain an outlier amid the global trend of rising yields. He anticipates that the benchmark yield might stabilize around current levels, awaiting further cues from the Consumer Price Index (CPI) data.

Interestingly, a newly auctioned 10-year government bond, introduced for the first time on Friday, swiftly emerged as the second most traded bond, following the benchmark bond closely. Market participants foresee the possibility of this new bond ascending to benchmark status after its subsequent issuance. The government auctioned bonds worth Rs 20,000 crore, with a coupon rate set at 7.10 percent.

Vikas Goel, Managing Director and CEO of PNB Gilts, highlighted that the issuance size of the new 10-year bond suggests its potential to become the benchmark after the second issuance, especially amidst prevailing negative market sentiment.

Further bolstering bond yields on Monday was the rise in overnight interest swap (OIS) rates. The 5-year OIS rate surged by 10 bps, while the 1-year OIS rate increased by 5 bps.

The surge in US Treasury yields was fueled by speculation that the US Federal Reserve might delay rate cuts this year. Strong economic data from the US, including manufacturing and employment figures, reduced the likelihood of rate cuts in June, as indicated by the CME’s FedWatch Tool. Consequently, the yield on the 10-year US Treasury note rose to 4.45 percent by the end of Monday’s trading session.

With a keen eye on further developments, market participants await the US Consumer Price Index (CPI) data later in the week for insights into the future rate trajectory. Meanwhile, domestic inflation in India is expected to moderate, as projected by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) in its recent forecasts for the current financial year.