Monetary Policy Committee (MPC) decision – June 2025

Monetary Policy Committee (MPC) decision – June 2025, covering growth, inflation, and policy stance:

🔍 Key Objectives

The MPC aims to:

• Maintain CPI inflation at 4% (within a ±2% band).

• Support sustainable economic growth.

🧩 Growth Update

📊 Recent Data (FY24-25):

• Q4 GDP Growth: 7.4% (up from 6.4% in Q3).

• Full-year GDP Growth: 6.5%.

• Q4 GVA Growth: 6.8%; FY GVA: 6.4%.

🔮 FY25-26 Outlook:

• Projected Real GDP Growth: 6.5%.

  • Q1: 6.5%

  • Q2: 6.7%

  • Q3: 6.6%

  • Q4: 6.3%

• Growth Drivers:

  • Strong private consumption and capital formation.

  • Resilient rural demand and services sector strength.

  • Capex push, better corporate balance sheets.

  • Positive outlook for agriculture (due to forecast of an above-normal monsoon).

  • FTA with the UK and other trade agreements aiding external trade

⚠️ Risks to Growth:

• Global geopolitical tensions and trade disruptions.

• Weather-related uncertainties (especially if the monsoon disappoints).

• Global growth slowdown could weigh on exports and investor sentiment.

📉 Inflation Update

📊 Recent Data:

• April 2025 CPI Inflation: 3.2% (lowest in nearly 6 years).

• Food inflation declining for six straight months.

• Fuel inflation turned positive (reversal of deflation).

• Core inflation stable despite gold price rise.

🔮 FY25-26 Outlook:

• Headline CPI forecast: 3.7% (revised down from 4.0%).

  • Q1: 2.9%

  • Q2: 3.4%

  • Q3: 3.9%

  • Q4: 4.4%

• Inflation Drivers:

  • Higher Rabi wheat and pulses output ensures food security.

  • Expected normal monsoon supports kharif crop outlook.

  • Lower international commodity prices and moderating rural inflation expectations help maintain inflation trajectory.

⚠️ Upside Risks:

• Weather shocks (like El Niño or delayed monsoon).

• Tariff-related global commodity price spikes.

💡 MPC Policy Decision:

🏦 Repo Rate Cut:

• Cut by 50 bps to 5.50%.

• Follows a total 100 bps cut since February 2025.

• Reflects a need to frontload support for growth as inflation is well-contained.

⚖️ Policy Stance:

• Changed from ‘Accommodative’ to ‘Neutral’.

  • Signals a data-dependent approach going forward.

  • Space for further easing is now limited, and any future decisions will be based on real-time economic signals.

🧠 Interpretation:

• The MPC is taking proactive measures to support growth amid a benign inflation backdrop.

• With inflation below the target, it is using the available window to stimulate the economy through monetary easing.

• However, the shift to a neutral stance reflects caution — signalling that further rate cuts are not guaranteed.

• The global outlook remains a key uncertainty, especially with commodity markets and trade tensions in flux.

📌 Summary Table