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Indian Express
4 hours ago
- Business
- Indian Express
RBI Policy: Why MPC is likely to cut repo rate for third consecutive time
The Reserve Bank of India's (RBI) six-member Monetary Policy Committee (MPC) is expected to cut the repo rate – the key policy rate – by 25 basis points (bps) in the policy meeting scheduled from June 4 to 6, to support growth as inflation continues to remain below the 4 per cent target. This would be the third consecutive reduction in the repo rate since February 2025. Economists also believe that the RBI may maintain the 'accommodative' monetary policy stance. With benign inflation, there has been a consensus among economists that the six-member MPC will cut the repo rate by 25 basis points (bps) to 5.75 per cent in the upcoming meeting. One basis point (bps) is one-hundredth of a percentage point. 'We expect RBI to cut policy rates by 25 bps in June. The space to cut policy rates is derived from sharp deceleration in inflation. Meanwhile, given the uncertainty on demand conditions both domestic and external, growth requires money policy support,' said IDFC First Bank Chief Economist, Gaura Sengupta. Headline inflation, as measured by year-on-year changes in the all-India consumer price index (CPI), moderated to 3.2 per cent in April, the lowest since July 2019, from 3.3 per cent in March. The easing in CPI has been driven by the sustained fall in food prices. Economists said that with inflation remaining below the 4 per cent target in the last three months (February, March and April), and a sharp fall in food inflation, CPI is likely to durably align with the 4 per cent target over a 12-month period. Under the flexible inflation targeting (FIT) framework, the RBI has been mandated by the government to maintain CPI at 4 per cent with a band of +/-2 per cent. 'The benign inflation outlook and moderate growth warrant monetary policy to be growth supportive, while remaining watchful about the rapidly evolving global macroeconomic conditions,' the RBI said in the annual report for 2024-25. The MPC is likely to retain the monetary policy stance as 'accommodative', analysts said. In the April policy, the rate-setting panel had changed the stance from neutral to accommodative. According to economists, the RBI is likely to revise its projections on real gross domestic product (GDP) and inflation for FY26. 'The commentary on both growth and inflation will be important as there are expectations of revisions in their forecasts for both the parameters. It is also expected that the RBI will detail its analysis on how the global environment would be affecting the Indian economy considering that the tariff reprieve provided by the USA would end in July,' said Madan Sabnavis, chief economist at Bank of Baroda. As per the RBI's estimate, CPI inflation for FY26 is expected to be at 4 per cent. The easing of supply chain pressures, softening of global commodity prices and higher agricultural production on the back of a likely above-normal south-west monsoon augur well for the inflation outlook in FY26, the RBI's annual report said. 'Any potential downward revision in FY26 CPI inflation will be closely watched, as it will provide an indication of the depth of the rate cutting cycle,' said IDFC First Bank's Sengupta. The real GDP growth for FY26 is projected at 6.5 per cent. In the quarter ended January-March 2025, the domestic economy picked up pace and grew at a four-quarter high of 7.4 per cent. For the financial year 2024-25, the growth rate stood at 6.5 per cent, which was a four-year low. 'The Indian economy is poised to sustain its position as the fastest growing major economy during 2025-26, supported by pickup in private consumption, healthy balance sheets of banks and corporates, easing financial conditions and the government's continued thrust on capital expenditure,' the RBI's annual report said. If the repo rate is reduced by 25 bps, all external benchmark lending rates (EBLR) linked to it will decline by a similar margin. It would be a relief for borrowers as their equated monthly instalments (EMIs) on home and personal loans will drop by 25 bps. Following a 50 bps cut in the repo rate since February 2025, most banks have reduced their repo-linked lending rates by the same magnitude. Lenders have also lowered their marginal cost of funds-based lending rate (MCLR). Following the likely repo rate cut in the June policy, the RBI is likely to go for a total reduction of 50 bps in the current financial year, experts said. 'Two more cuts over the subsequent two policy reviews are expected, taking the repo rate to 5.25 per cent by the end of the cycle,' said Aditi Nayar, chief economist, ICRA Ltd.
Time of India
3 days ago
- Business
- Time of India
Interest rates, dollar sales boost RBI income by 27%
A surge in global interest rates and gains from dollar sales to stem the rupee's fall boosted the Reserve Bank of India's (RBI's) FY25 net income by 27%, enabling it to transfer a record surplus to the central government and help bridge the fiscal gap. North Block's money manager also demonstrated the prudence it expects from mainstream lenders, boosting gold holdings in its overall asset mix to mitigate quality slippage risks. The central bank's net income rose to ₹2.69 lakh crore last fiscal, up from ₹2.11 lakh crore a year earlier, as its investments in overseas assets yielded decade-high returns, its annual report shows. 'Income from foreign sources increased 38% to ₹2.58 lakh crore,'' the annual report said. 'The rate of earnings on foreign currency assets was 5.31% during the year compared with 4.21%'' in the year before that. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Dukung Orang Terkasih Menghadapi Limfoma: Mulai Di Sini Limfoma Klik Di Sini Undo Income from Forex Transactions Up 33% A sharp increase in the returns from foreign currency assets (FCA) of the central bank helped it last week pay a dividend of ₹2.69 lakh crore to the government, up from ₹2.1 lakh crore a year ago, giving the Centre a fiscal space of 0.12% of GDP. The payout was higher despite an increase in the contingency risk buffer (CRB) to a maximum 7.5% of the RBI's balance sheet under a revised economic capital framework (ECF). Live Events 'Earnings on FCA improved significantly on account of better returns on the dollar,'' said Dipanwita Mazumdar, economist at Bank of Baroda . 'This becomes critical given that our forex reserves held by the RBI have been increasing and are being invested in various avenues.'' Interest income from investments in foreign securities was up 48% to ₹97,007 crore against ₹65,328 crore in FY24. The report also says that RBI's income from foreign exchange transactions rose 33% to ₹1.11 lakh crore in FY25, against ₹83,616 crore a year ago. 'This ensures that the Centre meets its fiscal deficit target of 4.4% of GDP—if not exceed,' said Gaura Sengupta, chief economist, IDFC Bank. In FY19, the RBI adopted the ECF that required the central bank to maintain a contingency risk buffer of 5.5–6.5%. 'The dividend would have been even higher if the provisioning wasn't increased to 7.5% of total assets from 6.5% earlier,' said Sengupta. 'Indeed, if the provisioning was maintained according to the old framework, the dividend would have been ₹3.5 lakh crore.' Under the revised ECF, the CRB is 4.5–7.5% of the central bank's balance sheet. 'The dividend announcement, though lower than market expectation, was still larger than the budgeted estimate by 0.15% of GDP,'' said Anubhuti Sahay, Head of India Economics Research, Standard Chartered Bank. Price Stability, Liquidity Going forward, domestic economic activity is expected to strengthen from the lows of the first half of FY25, said the annual report. The economic outlook is an important deciding factor in arriving at the CRB levels. Headline inflation is expected to ease and move further toward the legally mandated target in 2025–26, said the annual report. Monetary policy is committed toward achieving durable price stability, which is a necessary prerequisite for high growth on a sustained basis, said the report. The Reserve Bank will undertake liquidity management operations in sync with the monetary policy stance and keep system liquidity adequate to meet the needs of the productive sectors of the economy, said the annual report. In FY25, the RBI's total expenditure rose 7.76% to ₹69,714 crore, due to higher interest spends, printing of notes and employee costs. The expenditure also includes provisions toward the contingency fund and asset development fund (ADF). However, no provision was made toward ADF. An amount of ₹44,861.70 crore was provided toward the contingency fund to maintain the Available Realised Equity at the level of 7.5% of the balance sheet. Accordingly, the balance in CF as on March 31, 2025, was ₹5.42 lakh crore, compared with ₹4.29 lakh crore as on March 31, 2024. The size of the balance sheet increased by ₹5.78 lakh crore, or 8.2%, to ₹76.25 lakh crore. The increase on the assets side was due to a rise in gold holdings, domestic investments and foreign investments by 52%, 14.3% and 1.7%, respectively. On the liabilities side, expansion was due to an increase in notes issued, revaluation accounts, and other liabilities by 6.03%, 17.32% and 23.31%, respectively. Domestic assets constituted 25.73% while foreign currency assets, gold (including gold deposit and gold held in India) and loans and advances to financial institutions outside India constituted 74.27% of total assets as on March 31, 2025, against 23.31% and 76.69%, respectively, as on March 31, 2024. The share of gold in net foreign assets increased to 12% as at end-March 2025 from 8.3% as at end-March 2024, mainly due to revaluation gains from gold prices. Net credit to the government expanded during the year owing to the liquidity injection through purchase of G-secs via open market operations during January–March 2025.
Economic Times
3 days ago
- Business
- Economic Times
Interest rates, dollar sales boost RBI income by 27%
RBI's FY25 net income surged by 27% due to higher global interest rates and dollar sales, enabling a record surplus transfer to the government. Increased returns from foreign currency assets and forex transactions significantly contributed to this rise. The central bank also strategically increased its gold holdings to bolster its asset mix and manage risks. Tired of too many ads? Remove Ads Income from Forex Transactions Up 33% Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Price Stability, Liquidity A surge in global interest rates and gains from dollar sales to stem the rupee's fall boosted the Reserve Bank of India's (RBI's) FY25 net income by 27%, enabling it to transfer a record surplus to the central government and help bridge the fiscal gap. North Block's money manager also demonstrated the prudence it expects from mainstream lenders, boosting gold holdings in its overall asset mix to mitigate quality slippage central bank's net income rose to ₹2.69 lakh crore last fiscal, up from ₹2.11 lakh crore a year earlier, as its investments in overseas assets yielded decade-high returns, its annual report shows.'Income from foreign sources increased 38% to ₹2.58 lakh crore,'' the annual report said. 'The rate of earnings on foreign currency assets was 5.31% during the year compared with 4.21%'' in the year before that.A sharp increase in the returns from foreign currency assets (FCA) of the central bank helped it last week pay a dividend of ₹2.69 lakh crore to the government, up from ₹2.1 lakh crore a year ago, giving the Centre a fiscal space of 0.12% of payout was higher despite an increase in the contingency risk buffer (CRB) to a maximum 7.5% of the RBI's balance sheet under a revised economic capital framework (ECF).'Earnings on FCA improved significantly on account of better returns on the dollar,'' said Dipanwita Mazumdar, economist at Bank of Baroda . 'This becomes critical given that our forex reserves held by the RBI have been increasing and are being invested in various avenues.''Interest income from investments in foreign securities was up 48% to ₹97,007 crore against ₹65,328 crore in FY24. The report also says that RBI's income from foreign exchange transactions rose 33% to ₹1.11 lakh crore in FY25, against ₹83,616 crore a year ago.'This ensures that the Centre meets its fiscal deficit target of 4.4% of GDP—if not exceed,' said Gaura Sengupta, chief economist, IDFC FY19, the RBI adopted the ECF that required the central bank to maintain a contingency risk buffer of 5.5–6.5%.'The dividend would have been even higher if the provisioning wasn't increased to 7.5% of total assets from 6.5% earlier,' said Sengupta. 'Indeed, if the provisioning was maintained according to the old framework, the dividend would have been ₹3.5 lakh crore.'Under the revised ECF, the CRB is 4.5–7.5% of the central bank's balance sheet.'The dividend announcement, though lower than market expectation, was still larger than the budgeted estimate by 0.15% of GDP,'' said Anubhuti Sahay, Head of India Economics Research, Standard Chartered forward, domestic economic activity is expected to strengthen from the lows of the first half of FY25, said the annual report. The economic outlook is an important deciding factor in arriving at the CRB inflation is expected to ease and move further toward the legally mandated target in 2025–26, said the annual report. Monetary policy is committed toward achieving durable price stability, which is a necessary prerequisite for high growth on a sustained basis, said the Reserve Bank will undertake liquidity management operations in sync with the monetary policy stance and keep system liquidity adequate to meet the needs of the productive sectors of the economy, said the annual FY25, the RBI's total expenditure rose 7.76% to ₹69,714 crore, due to higher interest spends, printing of notes and employee expenditure also includes provisions toward the contingency fund and asset development fund (ADF). However, no provision was made toward amount of ₹44,861.70 crore was provided toward the contingency fund to maintain the Available Realised Equity at the level of 7.5% of the balance sheet. Accordingly, the balance in CF as on March 31, 2025, was ₹5.42 lakh crore, compared with ₹4.29 lakh crore as on March 31, size of the balance sheet increased by ₹5.78 lakh crore, or 8.2%, to ₹76.25 lakh crore. The increase on the assets side was due to a rise in gold holdings, domestic investments and foreign investments by 52%, 14.3% and 1.7%, the liabilities side, expansion was due to an increase in notes issued, revaluation accounts, and other liabilities by 6.03%, 17.32% and 23.31%, assets constituted 25.73% while foreign currency assets, gold (including gold deposit and gold held in India) and loans and advances to financial institutions outside India constituted 74.27% of total assets as on March 31, 2025, against 23.31% and 76.69%, respectively, as on March 31, share of gold in net foreign assets increased to 12% as at end-March 2025 from 8.3% as at end-March 2024, mainly due to revaluation gains from gold credit to the government expanded during the year owing to the liquidity injection through purchase of G-secs via open market operations during January–March 2025.
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Business Standard
26-05-2025
- Business
- Business Standard
India GDP growth likely picked up in Q4 on strong rural spending: Poll
Indian economic growth likely picked up last quarter, a Reuters poll of economists found, in part from strength in rural spending related to better agricultural output even as urban spending likely remained more subdued. Gross domestic product (GDP) in Asia's third-largest economy likely grew 6.7 per cent year-on-year in the January-March period up from 6.2 per cent the previous quarter, according to the median forecast from a May 19-23 Reuters poll of 56 economists. Forecasts ranged from 5.8 per cent to 7.5 per cent. "If you look at the real growth momentum ... we are seeing some signs of a pickup on the rural side, by the fact that crop output is better, followed by moderation in inflation pressures," said Gaura Sengupta, chief economist at IDFC First Bank. Economists at Citi wrote "resilient (agricultural) activity continues to bode well for rural consumption," adding that they "remain bearish on urban consumption" in the first half of the current fiscal year, with a recovery driven by policy stimulus. The Reserve Bank of India is expected to cut interest rates for a third consecutive meeting in June. But Standard Chartered's head of India economic research, Anubhuti Sahay, said any growth improvement was mainly driven by the positive impact of net indirect taxes as subsidy payments were significantly lower during the period. Economic activity as measured by gross value added (GVA), considered a more stable gauge of growth and excludes indirect taxes and subsidies, expanded a modest 6.4 per cent in the first three months of 2025 compared to 6.2 per cent the previous quarter. Without stronger domestic demand, GDP growth will continue to rely heavily on government spending, as it has for years. "The recovery is possibly more in numbers than in real improvement in activity. Weak investment prospects, exacerbated by struggling manufacturing suggest a growth recovery is multiple quarters away," said Kunal Kundu, India economist at Societe Generale. "There was some sense of improvement in rural demand but real wages are still not showing signs of meaningfully moving up. Rural demand is ... not strong enough to be an important growth driver on its own as it's just showing some signs of moving up from a weak base, while urban demand continues to be weak." Economists also cautioned that erratic US trade policy since the start of the year presents a shaky backdrop for future growth prospects. A separate Reuters poll taken last month found US tariffs had negatively hit business sentiment, which bodes poorly for a long-expected pickup in corporate spending. "Private investments ... whatever interest rate cuts you do, I don't think will move significantly higher simply because private investments will be determined more by a relatively certain atmosphere," said Indranil Pan, chief economist at Yes Bank. "It's ultimately the outlook from the demand and overall sentiment ... that can help, which currently is unfortunately not getting any help because of the uncertainty that is there in the global system."
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Business Standard
25-05-2025
- Business
- Business Standard
Agri output likely to propel India's Q4 GDP growth to 4-quarter high
Growth in the Indian economy likely gained momentum to touch at least a four quarter high in Q4 (January - March) of FY 25 after witnessing moderate growth rates in the preceding three quarters, owing to strong showing in agricultural output that likely lifted rural consumption demand, trade, hotels and transport segment and construction sector, according to analysts. During the first three quarters of FY25, the economy grew at 6.5 per cent, 5.6 per cent, and 6.2 per cent, respectively. The National Statistics Office (NSO) has projected the FY25 growth rate at 6.5 per cent, implicitly assuming 7.6 per cent growth in the fourth quarter of FY25. The statistics ministry is scheduled to release the provisional estimates of national income for FY25 and GDP data for Q4 of FY25 on May 30. The NSO will release the Q4 growth numbers and the provisional estimates of gross domestic product (GDP) data for FY25 on Friday. High-frequency indicators like fertiliser sales (5.4 per cent) and domestic tractor sales (23.4 per cent) which can be used as proxy for agriculture sector growth saw sequential uptick during the fourth quarter. Though growth in agri credit (11.3 per cent) moderated, it still managed to remain in double digits. 'We think the agriculture sector growth is likely to show improvement, as suggested by advance estimates of crop production - which show record high wheat production. Accordingly, we estimate agriculture GVA growth at 5.8 per cent in Q4, accelerating from 5.6 per cent in Q3,' said Aastha Gudwani, India chief economist, Barclays. The strong agri output and improvement in real rural wage growth (2.3 per cent) is expected to have supported rural demand in Q4, even as urban demand remains subdued. 'According to the Neilsen IQ survey, rural FMCG sales volume growth remains strong at 8.4 per cent in Q4. That said, there isn't a uniform improvement in rural indicators with subdued two-wheeler sales and diesel consumption growth,' says Gaura Sengupta, chief economist, IDFC Bank. Indicators like passenger vehicle sales (2.3 per cent), consumer goods production (1 per cent) and personal loans (14 per cent) which reflect urban consumption moderated during the quarter. 'Real urban wage growth remains in the low single digit. FMCG sales volume growth in urban areas has weakened to 2.6 per cent. Electronic payments indicators also confirm subdued urban demand with slowdown in UPI, credit and debit card transactions growth,' adds Sengupta. However, high-frequency indicators like domestic air passenger traffic (12 per cent), toll collection (17.2 per cent), E-way bill collections (19.4 per cent) and port cargo traffic (3.7 per cent) which can be used as a proxy for 'trade, hotels and transport' segment growth, saw sequential uptick during the fourth quarter. In the services sector, higher steel consumption (11.8 per cent) and cement production (12.4 per cent) during the quarter also reflected improved construction sector growth. 'GDP growth in Q4 is likely to be supported by strong momentum in the hotels & transport segment. Anecdotal evidence shows travel activities were up in Q4 on the back of Kumbh mela and major concerts. [Alongwith] foreign tourist arrivals contracted by 1.3 per cent in Q4, lower than a contraction of 3 per cent in Q3,' said CARE Ratings in a note. Meanwhile, growth in the industrial sector is expected to remain subdued which can be gauged from proxy indicators like index of industrial production (3.6 per cent) and iron production (7.3 per cent) which saw a slowdown during the quarter.
