MPC’s June Meeting: In Pursuit of Growth

Introduction
In a widely anticipated move, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) convened for its bi-monthly meeting in June with a clear agenda — reigniting India’s economic momentum. Amid moderating inflation and promising signs of industrial recovery, the six-member panel led by RBI Governor Shaktikanta Das chose to retain the policy repo rate at 6.5% for the eighth consecutive meeting. However, the tone of the meeting subtly shifted from inflation management to growth stimulation, signaling a strategic recalibration.

Policy Highlights: Status Quo but Shifting Focus

• Repo Rate: Maintained at 6.5%

• Stance: “Withdrawal of accommodation” continues

• Inflation Projection (FY25): Retained at 4.5%

• GDP Growth Projection (FY25): Upgraded slightly to 7.2% from 7%

The decision to maintain the repo rate was unanimous, but members acknowledged increasing headroom to support growth, provided inflation stays within target.

“We are closely monitoring transmission lags, but India’s macro fundamentals are resilient,” said Governor Das in the post-policy press conference. “While inflation remains our primary mandate, there’s a strong case for nurturing growth in sectors where momentum is subdued.”

Economic Context: Inflation Cools, Growth Outlook Improves
India’s Consumer Price Index (CPI) inflation eased to 4.8% in April, offering some respite after hovering above 5% for much of FY24. Core inflation, stripped of food and fuel, also moderated, providing the MPC more confidence in maintaining a growth-friendly posture.

The real GDP data released days before the policy meet revealed a stronger-than-expected 8.2% expansion in FY24, driven by government spending, manufacturing resurgence, and robust exports. However, private consumption — a critical engine of sustained growth — showed signs of fragility, prompting concerns among policymakers.

“The policy is pivoting gradually towards growth support,” noted Sakshi Gupta, Principal Economist at HDFC Bank. “While the RBI refrained from a rate cut, forward guidance hinted at flexibility if inflation continues to stay benign and consumption does not recover strongly.”

Sectoral Implications: Lending, Housing, MSMEs in Spotlight
While rate-sensitive sectors such as housing, auto, and infrastructure were hoping for a rate cut, the MPC’s neutral bias is seen as supportive of continued credit availability. Banks have gradually been transmitting the previous tightening, but credit offtake — particularly in the micro, small, and medium enterprises (MSME) sector — remains sluggish.

The MPC noted that targeted support for sectors like affordable housing and rural credit could be ramped up through liquidity management tools. The RBI also reaffirmed its commitment to using macroprudential measures to ensure that financial stability is not compromised in the process of aiding growth.

Global Backdrop: Central Banks Walk a Tightrope
The RBI’s calibrated approach aligns with trends among other emerging market central banks that are prioritizing domestic growth without rushing into policy easing. With the U.S. Federal Reserve keeping rates elevated and inflation in the Eurozone still volatile, the global financial environment remains cautious.

“India is in a sweet spot with moderating inflation and high growth,” commented Neelkanth Mishra, Chief Economist at Axis Bank. “However, premature easing could invite capital volatility, especially if the Fed delays its rate cuts.”

Investor Outlook: Cautious Optimism Prevails
Equity markets reacted positively to the MPC’s dovish undertone. The BSE Sensex gained over 400 points intraday post-announcement, with banking, real estate, and FMCG stocks leading the rally. Bond markets also firmed up, with the 10-year yield softening by 5 basis points to 6.97%, reflecting expectations of future rate moderation.

“Markets are factoring in a potential rate cut in Q4 FY25 if inflation continues to surprise on the downside,” said Sandeep Bagla, CEO of Trust Mutual Fund. “This creates a favorable backdrop for long-duration bond investors.”

Foreign portfolio investors (FPIs), who turned net buyers in May, are expected to maintain inflows into Indian debt and equity, particularly if the growth narrative strengthens without stoking inflation.

Forward Guidance: Growth-Friendly, Data-Dependent
Governor Das emphasized the importance of a “data-dependent” approach, noting that any future policy moves will hinge on inflation prints, global interest rate cycles, and domestic demand trends. While no explicit signal of a rate cut was given, analysts believe the RBI has opened the door to gradual easing in the second half of FY25.

In conclusion, the June MPC meeting marked a nuanced but noteworthy pivot in India’s monetary policy trajectory — from a single-minded focus on inflation to a more balanced strategy that supports growth without compromising macro stability.