A balancing act
THE Reserve Bank of India (RBI), in its December monetary policy review, upheld its steadfast stance on inflation control by keeping the repo rate unchanged at 6.5 per cent. This is the 11th consecutive time that the central bank has decided to maintain the rate. It underscores the Monetary Policy Committee’s emphasis on price stability over growth amid persistently high inflation and liquidity concerns. However, the upward revision of the FY25 inflation forecast to 4.8 per cent reveals enduring challenges. High food prices remain the culprit, with retail inflation spiking to a 14-month high of 6.21 per cent in October 2024. Yet, the RBI’s nuanced response — cutting the Cash Reserve Ratio by 50 basis points to 4 per cent — signals its recognition of liquidity constraints and the immediate need for growth support. This decision frees Rs 1.16 lakh crore for lending by banks, bolstering liquidity at a time of tight conditions exacerbated by forex interventions and fiscal demands.
The Indian economy’s resilience remains a key theme. Despite a seven-quarter low GDP growth of 5.4 per cent for July-September 2024, RBI Governor Shaktikanta Das projected recovery driven by festive demand, robust rural consumption and anticipated capital expenditure revival. Nonetheless, the downward revision of the FY25 GDP growth forecast from 7.2 per cent to 6.6 per cent reflects an acknowledgement of the growth slowdown. Das, whose tenure ends shortly, leaves behind a legacy of balancing inflation control with growth amid unprecedented global and domestic uncertainties. As debates on rate cuts to ease borrowing costs gain momentum, the RBI’s commitment to “durable price stability” appears resolute, suggesting a cautious approach until inflation aligns with the 4 per cent target.
As policymakers prepare for the Union Budget and navigate a challenging fiscal landscape, this measured stance highlights the central bank’s dual mandate of managing inflation and fostering growth — a delicate yet essential balancing act.
