RBI raises contingency reserve buffer to 6.5 per cent amid positive economic scenario

Ronit Kawale
Ronit Kawale - Senior Editor
5 Min Read

The Reserve Bank of India (RBI) on Friday announced raising the contingency reserve buffer from 6 per cent of GDP to 6.5 per cent.

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Das today announced the results of the Monetary Policy Committee meeting, which began its three-day meeting on Wednesday against the backdrop of the Lok Sabha election results.

Consumer Price Index (CPI) inflation for the financial year 2024-25 is projected at 4.5 per cent, Governor Shaktikanta Das today revealed.

This forecast is in line with the RBI's commitment to maintain price stability while promoting sustainable economic growth.

In his address, Governor Das cited provisional estimates released by the National Statistical Office (NSO), which projected India's real gross domestic product (GDP) growth rate at 8.2 per cent for FY 2023-24.

He emphasised that domestic economic activity has displayed resilience during the current financial year 2024-25, with manufacturing activity witnessing robust growth led by strong domestic demand.

Governor Das said India contributes 15.2 per cent to global remittances, reflecting the significant contribution of overseas Indian workers to the country's economy.

This substantial flow of remittances underlines India's strong ties with its diaspora and its ability to leverage human capital for economic growth.

Furthermore, foreign direct investment (FDI) inflows into India reached US$41.6 billion, reflecting investors' confidence in the country's business environment and growth prospects.

Gross non-performing assets (NPAs) of all scheduled commercial banks and non-banking financial companies (NBFCs) remained below 3 per cent.

India's foreign exchange reserves have reached a historic high of US$651.5 billion as of May 31, underlining the country's strong position in terms of liquidity and external stability.

“India's foreign exchange reserves reached a historic high of US$651.5 billion on May 31,” Das stressed.

Furthermore, India’s external sector remains resilient, and key vulnerability indicators are steadily improving.

This resilience is a testament to the country’s ability to respond to global economic challenges and underlines its position as a key player in the international arena.

Highlighting key indicators of economic performance, Governor Das noted the healthy growth recorded by eight core industries in April 2024.

Additionally, he underlined the strength demonstrated by the Purchasing Managers' Index (PMI) in the manufacturing sector, which will reach its highest level globally in May 2024.

Moreover, the services sector maintained its momentum, as evident from the strong expansion shown by the PMI Services index of 60.2 in May 2024.

Governor Das reiterated RBI's commitment to maintaining a balanced growth-inflation trajectory, saying, “

The inflation growth balance is moving favourably. Growth remains stable. Inflation continues to moderate, driven mainly by the core component, which reached its lowest level in the current series in April 2024. Fuel prices continue to decline. Food inflation, however, remains elevated. While the MPC notes that inflation has so far been achieved without hurting growth, it remains alert to any upside risks to inflation, particularly from food inflation, which could potentially derail the inflation path.

“Therefore, monetary policy should remain inflation-accelerating and remain committed to bringing inflation close to the target of 4 per cent on a durable basis. Sustained price stability will lay a strong foundation for a period of high growth,” he said.

He acknowledged the ongoing decline in fuel prices, but also highlighted that food inflation still remains high.

While acknowledging the achievements in disinflation without compromising growth, Governor Das stressed the importance of remaining alert to potential risks to inflation, particularly those emanating from food prices.

He stressed that monetary policy should be disinflationary and committed to keeping inflation within the target of 4 per cent on a durable basis.

According to Governor Das, sustained price stability lays the foundation for a period of strong economic growth.

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