Mumbai (Maharashtra) [India], February 21 (ANI): The Reserve Bank of India (RBI) Governor, Sanjay Malhotra, stated that budget proposals focusing on agriculture and fiscal consolidation would positively impact price stability and help anchor inflation expectations over the medium term. This was highlighted in the minutes of the latest monetary policy review meeting.
Fiscal Deficit Target and Budget Priorities
On February 1, Finance Minister Nirmala Sitharaman presented the Union Budget, setting a fiscal deficit target of 4.4% of GDP for FY 2025-26. The government continues to focus on reducing the fiscal deficit through a structured glide path.
The fiscal deficit represents the difference between total revenue and expenditure, indicating the borrowings required by the government. Budget 2025 emphasizes non-inflationary growth through prudent fiscal management, ensuring that all borrowings are directed exclusively toward capital expenditure.
Inflation Outlook and Monetary Policy Response
According to Governor Malhotra, the fiscal strategy and budget priorities will support disinflation, aligning the headline Consumer Price Index (CPI) with the target rate. CPI inflation is projected at 4.2% for Q4 of 2024-25 and the full financial year 2025-26.
Despite persistent global geopolitical tensions and elevated trade uncertainties, the RBI remains committed to macroeconomic and financial stability. Domestically, balancing high growth momentum with price stability requires strategic use of policy instruments to maintain the inflation-growth equilibrium. Headline inflation, which had breached the upper tolerance band of 6% in October, moderated in November and December.
Food inflation pressures are expected to ease significantly due to a robust kharif harvest, seasonal corrections in vegetable prices, and a promising rabi crop outlook. “The food inflation outlook is turning decisively positive,” Malhotra noted.
Economic Growth and GDP Projections
India’s real GDP growth is estimated at 6.4% for the current year, following a strong 8.2% expansion last year. While the GDP growth rate for the first half of 2024-25 stood at 6.0%, it is expected to recover in the second half and further improve in 2025-26, with projections ranging from 6.3% to 6.8%.
Healthy rabi prospects and a revival in industrial activity are expected to drive this recovery. Additionally, consumption and investment are anticipated to improve, supported by growth-oriented budget measures. The Economic Survey 2024-25, tabled on January 31, emphasized that India needs to sustain an 8% growth rate over the next two decades to achieve its ‘Viksit Bharat’ vision.
Repo Rate Cut and Monetary Policy Stance
Given the macroeconomic outlook and anticipated inflation alignment, the RBI Governor voted to lower the policy repo rate by 25 basis points. Monetary policy easing, combined with strong agricultural growth and budgetary support, is expected to boost household consumption, housing investments, and capital expenditure, thereby strengthening aggregate demand.
During its February 5-7 meeting, the RBI’s Monetary Policy Committee (MPC) unanimously decided to cut the repo rate from 6.5% to 6.25%—the first rate cut in nearly five years. The policy stance remained neutral, allowing flexibility for future actions.
The repo rate, which determines the interest rate at which RBI lends to commercial banks, plays a crucial role in influencing borrowing costs across the economy. This rate cut is expected to support economic growth, with the central bank projecting GDP expansion at 6.7% in 2025-26, up from 6.4% in 2024-25. Inflation is forecasted to decline to 4.2% in the next fiscal year from 4.8% in 2024-25, factoring in rupee volatility.
(ANI)
