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The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) left the repo rate — the rate at which the RBI lends to banks — unchanged at 6.5 per cent for the sixth time in a row as uncertainty over food inflation continues to pose a threat to inflation.
The RBI projected real GDP growth at 7 per cent and consumer-price based inflation (CPI) at 4.5 per cent for FY2025. Its growth estimate for FY2025 is lower than the 7.3 per cent projected by the National Statistical Office (NSO) for the ongoing fiscal.
The government, in the Interim Budget for 2024-25, said the nominal GDP – without excluding the pace of inflation – is likely to grow at 10.5 per cent.
Announcing the policy, RBI Governor Shaktikanta Das said, “Taking into account this growth-inflation dynamics and the fact that transmission of the cumulative 250 bps (basis points) policy rate hike is still underway, the MPC decided to keep the policy repo rate unchanged at 6.5 per cent.
The MPC will carefully monitor any signs of generalisation of food price pressures which can fritter away the gains in the easing of core inflation.”
Free movement along border with Myanmar being suspended: Shah (Page no. 1)
(GS Paper 2, International Relation)
Days after announcing that a fence would be constructed along the entire 1,643-km-long Myanmar border to facilitate better surveillance, Union Home Minister Amit Shah said that the Centre has decided to scrap the Free Movement Regime (FMR) between India and Myanmar to ensure internal security of the country and to maintain the demographic structure of North-East States bordering Myanmar.
He said the Ministry of Home Affairs has recommended the immediate suspension of the FMR. In a post on X, Shah said, “It is Prime Minister Shri Narendra Modi Ji’s resolve to secure our borders.
The Ministry of Home Affairs (MHA) has decided that the Free Movement Regime (FMR) between India and Myanmar be scrapped to ensure the internal security of the country and to maintain the demographic structure of India’s North Eastern States bordering Myanmar.
Since the Ministry of External Affairs is currently in the process of scrapping it, MHA has recommended the immediate suspension of the FMR.”
Editorial
A Goldilocks phase (Page no. 12)
(GS Paper 3, Economy)
Within a week, the interim Union budget and the monetary policy have put in place a framework for a Goldilocks phase of steady growth and moderate inflation for the Indian economy.
On Thursday, the monetary policy committee decided to maintain the status quo, keeping the policy repo rate at 6.5 per cent.
The forecast for GDP growth in 2024-25 has been kept at 7 per cent, while for headline inflation it has been reduced in line with our expectations to 4.5 per cent.
With inflation expected to fall meaningfully below 4 per cent after June, the first rate cut could be as early as August if not in June itself.
The growth forecasts by the RBI, which seem conservative, and rightly so, have been trailing the official estimates for the last two years. However, they only validate the country’s robust growth trajectory.
Among the development and regulatory policy changes, the RBI has extended the requirement of the Key Fact Statement to cover all retail and MSME loans and advances.
This is designed to provide customers with a clear understanding of the actual annualised interest rate and the overall financial commitment associated with the loan.
This move can be seen as a significant step towards empowering customers with comprehensive information, enabling them to make informed decisions about their borrowing.
Economy
RBI targets inflation at 4% for sustainable economic growth (Page no. 15)
(GS Paper 3, Economy)
Reserve Bank Governor Shaktikanta Das on Thursday emphasised on achieving the four-per cent inflation target as stable and low inflation at four per cent for providing the necessary bedrock for sustainable growth.
“Headline inflation moderated to an average of 5.5 per cent during April-December 2023 from 6.7 per cent during 2022-23. Food price inflation, however, continued to impart considerable volatility to the inflation trajectory,” he said while unveiling the monetary policy review.
“In contrast, the deflation in consumer price index (CPI) fuel deepened and core inflation (CPI inflation excluding food and fuel) moderated to a four-year low of 3.8 per cent in December.
The decline in core inflation continued to be broad-based with inflation remaining steady or softening across its constituent groups and sub-groups.
The medium-term target for CPI inflation is 4 per cent within a band of plus or minus 2 per cent, the Monetary Policy Committee (MPC) said.
Retail inflation surged to a four-month high of 5.69 per cent in December driven by higher prices of food items such as pulses, spices, fruits and vegetables, data released by the National Statistical Office (NSO) showed.
Why MPC kept repo rate unchanged (Page no. 15)
(GS Paper 3, Economy)
As expected, interest rates on home, vehicle, personal and other loans in the banking system will remain unchanged with the six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) keeping the main policy instrument, repo rate, unchanged at 6.5 per cent in a 5:1 majority decision in its bi-monthly policy review.
The central bank also retained the stance of the monetary policy as ‘withdrawal of accommodation’ in a 5:1 majority decision.
The central bank has retained the headline inflation forecast at 5.4 per cent for the current fiscal as uncertainty persists on the food prices front.
However, Jayanth Varma, member of the MPC, differed with other members and voted for 25 basis points (bps) reduction in repo rate and changing the policy stance to ‘neutral’ from ‘withdrawal of accommodation’.
Explained
Court reserves verdict: debate around subcategorisation within SC quota (Page no. 16)
(GS Paper 2, Judiciary)
A seven-judge Constitution Bench headed by Chief Justice of India D Y Chandrachud (February 8) reserved judgment in the sub-classification among Scheduled Castes (SCs) case.
Some states have argued that despite reservation, some castes are grossly underrepresented in comparison with the so-called dominant Scheduled Castes.
They want to create a separate quota for such castes within the SC quota of 15%, to ensure that the benefits are adequately distributed.
In 2004, a five-judge Constitution Bench in ‘E.V. Chinnaiah v State of Andhra Pradesh’ held that only the President could notify which communities could receive reservation benefits as per Article 341 of the Constitution, and that states did not have the power to tamper with this.
A number of states have now returned to the Supreme Court to argue against the Chinnaiah decision, claiming that states do have the power to make sure reservation benefits are distributed to communities that need them the most.
The respondents on the other hand, defended the Chinnaiah judgment and argued that all Scheduled Castes must be treated equally.
World
India does not trust US to lead, played smart by staying close with Russia: Haley (Page no. 17)
(GS Paper 2, International Relation)
Republican presidential hopeful Nikki Haley said that India wants to be a partner with the United States, not Russia, but does not trust Washington to lead.
Speaking to Fox Business News in an interview, Haley, a former US ambassador to the United Nations in the Donald Trump government, said that she has dealt with India and talked with Prime Minister Narendra Modi, adding that New Delhi has played smart in the current global situation and stayed close with Russia.
Responding to a question, she said, “I have dealt with India too. I have got to say, I have dealt with India too. I have talked with Modi. India wants to be a partner with us. They don’t want to be a partner with Russia.”
The problem is, India doesn’t trust us to win. They don’t trust us to lead. They see right now that we’re weak. India has always played it smart.
They have played it smart, and they have stayed close with Russia, because that’s where they get a lot of their military equipment.