Consequently, the standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the bank rate at 6.75 per cent.

The committee also decided to stay focused on withdrawal of accommodation to ensure a progressive alignment of inflation with the target, while supporting growth, an RBI release said.

The decision was arrived at to achieve the medium-term consumer price index-based (CPI) inflation target of 4 per cent within a band of plus or minus 2 per cent, it noted.

Headline inflation increased to 5.1 per cent in June this year after remaining steady at 4.8 per cent during April-May.

Domestic economic activity continues to sustain its momentum. Industrial output expanded by 5.9 per cent year on year (YoY) in May this year and core industries rose by 4 per cent in June compared to 6.4 per cent in May.

Other high frequency indicators released during June-July 2024 indicate an ongoing revival of private consumption and signs of pickup in private investment activity. Merchandise exports, non-oil non-gold imports, services exports and imports expanded during April-June, RBI noted.

Going forward, the sustained momentum in manufacturing and services suggests steady urban demand. High frequency indicators of investment activity as evident in strong expansion in steel consumption, high capacity utilisation, healthy balance sheets of banks and corporates and the government’s continued thrust on infrastructure spending point to a robust outlook, the central bank noted.

Improving world trade prospects could support external demand. Headwinds from geopolitical tensions, volatility in international commodity prices and geoeconomic fragmentation, however, pose risks to the outlook.

Taking all these factors into consideration, real gross domestic product (GDP) growth for fiscal 2024-25 (FY25) is projected at 7.2 per cent with the first quarter (Q1) at 7.1 per cent; Q2 at 7.2 per cent; Q3 at 7.3 per cent; and Q4 at 7.2 per cent.

Real GDP growth for Q1 FY26 is projected at 7.2 per cent.

Manufacturing, services and infrastructure firms surveyed by RBI expect a pickup in selling prices in the second half this year. Households’ inflation expectations have also gone up and consumer confidence has weakened.

Assuming a normal monsoon, CPI inflation for FY25 is projected at 4.5 per cent, with Q2 at 4.4 per cent; Q3 at 4.7 per cent; and Q4 at 4.3 per cent. CPI inflation for Q1 FY26 is projected at 4.4 per cent.

The MPC expects domestic growth to hold up on the strength of investment demand, steady urban consumption and rising rural consumption.

Risks from volatile and elevated food prices remain high, which may adversely impact inflation expectations and result in spillovers to core inflation. There are also indications of core inflation bottoming out, it added.

Fibre2Fashion News Desk (DS)