RBI Monetary Policy | Gist of Rajya Sabha TV / RSTV (now Sansad TV) - UPSC PDF Download

Introduction

Key Features

• Stable Repo Rate: Maintained at 5.5% to balance growth and price stability.
• Growth Outlook: GDP forecast revised to 6.8%, driven by consumption and reforms.
• Low Inflation: Projected at 2.6%, supported by declining trends.
• Banking Reforms: Expected Credit Loss (ECL) norms and governance enhancements.

Key Highlights

• Unchanged Repo Rate: 5.5% with neutral stance, reflecting inflation control.
• Growth Forecast: 6.8% for FY 2025-26, with Q1 at 7.8–8%.
• Inflation Drop: Forecast at 2.6%, down significantly due to stable prices.
• GST Reforms Impact: Second-generation reforms boost consumption and competitiveness.
• Monsoon Boost: Enhances rural demand, supporting manufacturing and services.
• Banking Resilience: ECL norms to strengthen capital management over 2–3 years.
• Global Confidence: IMF, Fitch, and OECD project India’s growth at 6.3–6.9%.

Key Insights

1. Balanced Monetary Policy
   The RBI’s decision to hold the repo rate at 5.5% reflects confidence in low inflation (2.6%) and robust growth (6.8%), prioritizing stability amid global uncertainties.
2. GST and Monsoon Drivers
   Second-generation GST reforms (4% to 2%) and a strong monsoon contribute 40–50 basis points to the revised 6.8% GDP growth, boosting consumption and rural demand.
3. Subdued Credit Growth
   Despite 100 basis points of rate cuts, private bank lending to manufacturing slowed to 9.5% from 15%, indicating limited monetary easing impact.
4. Banking Sector Reforms
   ECL norms and tightened governance rules aim to enhance banking resilience, improve credit flow, and address conflicts of interest.
5. Global Competitiveness
   India’s 6.8% growth, nearly double the global average (3%) and triple the U.S. (1.9%), is backed by global agencies like IMF and Fitch.
6. Rupee Stability
   The rupee’s low volatility, supported by remittances and service inflows, strengthens external sector resilience despite trade deficit challenges.
7. Ease of Doing Business
   Reforms in foreign exchange, compliance, and logistics elevate India’s ranking (from 142 to 63), though cost margins remain a challenge for manufacturers.

Challenges and Opportunities

• Challenges: Boosting private sector credit growth, managing trade deficits, and navigating global headwinds.
• Opportunities: Leveraging GST reforms, enhancing rupee internationalization, and sustaining high growth.

FAQ

• Why was the repo rate unchanged? To maintain stability amid controlled inflation and robust growth.
• What drives India’s growth forecast? GST reforms, strong monsoon, and rising consumption.
• How does RBI address banking resilience? Through ECL norms and governance reforms over 2–3 years.
• What is the global outlook for India? Projected at 6.3–6.9% growth, far above global averages.
• How does RBI manage rupee stability? Minimal intervention, leveraging remittances and service inflows.

Conclusion