The Reserve Bank of India (RBI) retained its inflation forecast at 4.5% for FY25 in its October 2024 Monetary Policy Committee (MPC) meeting despite global economic uncertainties. Governor Shaktikanta Das highlighted that the central bank’s policy decisions are focused on striking a balance between inflation management and economic growth.
Inflation forecast and impact on the economy
The RBI expects inflation to remain steady at 4.5% for FY25, with Q2 at 4.1%, Q3 at 4.8%, and Q4 at 4.2%. This projection is critical for share market investments as stable inflation ensures predictability, helping investors make more informed decisions.
Governor Das noted that while inflation declined to 3.6% and 3.7% in July and August, respectively, a surge is likely in September due to unfavourable base effects and rising food prices. This data-driven approach by the MPC provides stability, which is essential for share market investments.
Monetary policy decisions and share market outlook
The MPC kept the policy repo rate unchanged at 6.5% for the tenth consecutive time, a move supported by five of the six members. This stability is crucial for share market investments, as investors often seek predictability in monetary policy. A stable repo rate implies that borrowing costs for businesses remain consistent, which in turn supports corporate profitability, one of the key drivers of stock prices.
By holding the inflation forecast and repo rate steady, the RBI allows for a more controlled and predictable economic environment. For those involved in share market investments, this offers an opportunity to analyse long-term trends and make informed investment choices.
Economic factors influencing inflation and investments
Governor Das highlighted several risks that could affect inflation, including volatile commodity prices, such as crude oil and metals, and the ongoing global geopolitical tensions. However, the RBI expects food inflation to ease by the last quarter of FY25, thanks to better Kharif arrivals and favourable Rabi season prospects. These factors play an important role in share market investments, as lower inflation can lead to improved corporate margins and higher stock valuations.
The standing deposit facility rate remains at 6.25%, while the marginal standing facility rate is unchanged at 6.75%. Maintaining these rates is a signal to the market that the RBI aims to support economic growth while keeping inflation in check. For investors, such clarity provides a more confident outlook for share market investments in sectors dependent on interest rates, such as banking and real estate.
The future outlook for share market investors
For investors looking at share market investments, the RBI’s decision to hold the inflation forecast and interest rates steady is a signal of economic resilience. While inflation risks remain, especially due to fluctuating commodity prices, the central bank’s measured approach creates a favourable investment climate. Investors can use this stability to explore opportunities in sectors that benefit from low inflation and consistent interest rates.
As the MPC continues to monitor global and domestic economic conditions, its decisions will remain pivotal for investors making share market investments in the coming quarters.
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