RBI MPC Outcomes: RBI cuts FY25 GDP growth projection from 7.2% to 6.6%; ups retail inflation projection to 4.8% from 4.5%
The Reserve Bank of India (RBI) has cut real GDP growth projection for FY25 to 6.6 per cent from its earlier projection of 7.2 per cent.
The central bank upped the CPI inflation projection for FY25 to 4.8 per cent from its earlier projection of 4.5 per cent.
GDP
In his bi-monthly monetary policy statement, Governor Shaktikanta Das observed that on the domestic front, real gross domestic product (GDP) registered a lower than expected growth of 5.4 per cent in Q2:2024-25 as private consumption and investment decelerated even while government spending recovered from a contraction in the previous quarter.
He noted that on the supply side, the growth in gross value added (GVA) during Q2 was aided by resilient services and improving agriculture sector, but weakness in industrial activity – manufacturing, electricity and mining – tempered overall growth.
“Looking ahead, robust kharif foodgrain production and good rabi prospects, coupled with an expected pickup in industrial activity and sustained buoyancy in services augur well for private consumption.
“Investment activity is expected to pick up. Resilient world trade prospects should provide support to external demand and exports. Headwinds from geo-political uncertainties, volatility in international commodity prices, and geo-economic fragmentation continue to pose risks to the outlook,” Das said.
Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 6.6 per cent (earlier projection: 7.2 per cent) with Q3 at 6.8 per cent (7.4 per cent per cent); and Q4 at 7.2 per cent (7.4 per cent).
Real GDP growth for Q1:2025-26 is projected at 6.9 per cent (7.3 per cent); and Q2 at 7.3 per cent. The risks are evenly balanced.
CPI inflation
The Governor observed that headline CPI inflation surged above the upper tolerance level to 6.2 per cent in October from 5.5 per cent in September and sub-4.0 per cent prints in July-August, propelled by a sharp pick-up in food inflation and an uptick in core (CPI excluding food and fuel) inflation.
Das said going forward, food inflation is likely to soften in Q4 with seasonal easing of vegetables prices and kharif harvest arrivals; and good soil moisture conditions along with comfortable reservoir levels auguring well for rabi production.
Adverse weather events and rise in international agricultural commodity prices, however, pose upside risks to food inflation. Even though energy prices have softened in the recent past, its sustenance needs to be monitored, Das said.
Businesses expect pressures from input costs to remain elevated and growth in selling prices to accelerate from Q4.
Taking all these factors into consideration, CPI inflation for 2024-25 is projected at 4.8 per cent (earlier projection: 4.5 per cent) with Q3 at 5.7 per cent (4.8 per cent); and Q4 at 4.5 per cent (4.2 per cent).
CPI inflation for Q1:2025-26 is projected at 4.6 per cent (4.3 per cent ); and Q2 at 4.0 per cent. The risks are evenly balanced.