RBI’s October 2024 Monetary Policy Report: Key Highlights

The Reserve Bank of India (RBI) presented its Monetary Policy Report in October 2024, outlining key insights on inflation, growth, and financial market dynamics, along with policy measures aimed at maintaining economic stability. Here are the major takeaways from the report:

Inflation Outlook

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  • Headline Inflation: Inflation moderated from 5.2% in H2 of 2023-24 to 4.4% during April-August 2024. Food inflation, however, remains elevated at 6.9% during this period, indicating persistent supply-side pressures.
  • Core Inflation: Core inflation has remained subdued due to disinflationary policies by the RBI. However, the report warns of risks from food price shocks, which could lead to unanchored inflation expectations if not addressed.
  • Inflation Projections: For 2024-25, the RBI projects inflation at 4.5%, with a gradual moderation. However, the pace of decline could be slow and uneven, depending on supply-side factors such as food prices and global developments .

GDP Growth and Economic Activity

  • Growth Momentum: The Indian economy continues to demonstrate resilience, with real GDP growth estimated at 7.2% for 2024-25. Key drivers include private consumption, government capital expenditure, and strong investment activity, especially in the manufacturing and services sectors .
  • Sectoral Growth: Manufacturing and services activity has strengthened, supported by robust domestic demand. Growth projections for Q2 and Q3 are around 7.0% and 7.4%, respectively .

Liquidity and Financial Markets

  • Liquidity Operations: The RBI adjusted its liquidity management operations based on changing market dynamics. Liquidity has been managed through variable rate repo (VRR) and reverse repo auctions to ensure the orderly evolution of financial markets .
  • Monetary Transmission: Domestic financial markets have remained resilient despite global volatility, and the transmission of policy actions continues to be effective in maintaining price stability. The central bank has been nimble in managing system liquidity to support economic activities .

Risks to Economic Stability

  • Geopolitical Risks and External Shocks: The report highlights several external risks, including volatile international financial markets, geopolitical tensions, and supply chain disruptions, which could impact growth and inflation .
  • Weather-Related Uncertainties: Domestic inflation is also susceptible to adverse weather-related shocks that could affect food prices and increase inflationary pressures .

Conclusion

The RBI remains focused on aligning inflation with its target of 4%, while supporting growth. The central bank will continue its flexible approach in managing liquidity and inflation dynamics amid a volatile global environment. Economic fundamentals remain strong, but risks from external factors such as global trade disruptions and geopolitical tensions could affect growth projections in the near term .

This comprehensive analysis of the October 2024 monetary policy report sheds light on the RBI’s outlook for inflation, growth, and the measures being taken to ensure macroeconomic stability.