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RBI Likely To Hold Policy Rate Amid GDP Slowdown And Weak Demand

Updated: Nov 30, 2024 04:47:22pm
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RBI Likely To Hold Policy Rate Amid GDP Slowdown And Weak Demand

New Delhi, Nov 30 (KNN) The Reserve Bank of India (RBI) appears set to maintain its current policy rate in the upcoming monetary policy meeting, amid growing economic challenges highlighted by recent GDP data.

The country's economic performance has shown a notable deceleration, with second-quarter growth falling to 5.4 percent year-on-year, down from 6.7 percent in the previous quarter.

Comprehensive economic indicators reveal a broad-based economic slowdown, with Gross Value Added (GVA) growth moderating to 5.6 percent in the second quarter of fiscal year 2025, compared to 6.8 percent in the preceding period. 

Financial analysts from HDFC Bank suggest that while the immediate outlook remains cautious, the likelihood of a potential rate cut in February has increased in light of the weaker-than-expected economic performance.

Demand-side dynamics have exhibited signs of weakness, with consumption growth experiencing a significant downturn. Urban demand has been particularly impacted, characterized by reduced momentum in consumer spending. 

The report highlights a moderation in leveraged consumption, evidenced by lower growth in unsecured retail lending, including personal loans and credit card expenditures.

Investment growth has also shown signs of deceleration, with government capital expenditure tracking lower compared to the previous year and private investment remaining subdued. 

Despite these challenges, there are nascent signs of potential economic resilience, particularly in the rural sector.

Analysts anticipate a potential economic recovery in the second half of the fiscal year, driven by strong agricultural performance, government scheme payouts, and increased public spending. 

The rural economy is expected to play a crucial role in revitalizing economic activity, offering a potential counterbalance to the current economic slowdown.

In its most recent Monetary Policy Committee meeting in October, the RBI maintained the policy repo rate at 6.5 percent for the tenth consecutive time. 

The current economic landscape suggests the central bank is likely to adopt a cautious, wait-and-watch approach in its upcoming meeting, with careful consideration of the evolving economic indicators.

The nuanced economic environment underscores the complex challenges facing India's economic landscape, with policymakers and financial experts closely monitoring potential recovery trajectories in the coming months.

(KNN Bureau)

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