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Economic Review February 2025 4 www.projectstoday.comThe Monetary Policy Committee (MPC) of the Reserve Bank of India on 7 February 2025, unanimously decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25 percent with immediate effect. Accordingly, the standing deposit facility (SDF) rate was adjusted to 6.00 percent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 percent. This decision aligns with the objective of achieving a medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth.Growth and Inflation Outlook:%u2022%u0009 The global economy is growing below the historical average, with high-frequency indicators suggesting resilience amidst continued world trade expansion. However, slower disinflation, lingering geopolitical tensions, and policy uncertainties challenge the global economic landscape. The strong dollar continues to strain emerging market currencies and enhance financial market volatility.%u2022%u0009 Domestically, real GDP is estimated to grow at 6.4 percent in 2024-25, supported by a recovery in private consumption, the services sector, and agriculture. Tepid industrial growth remains a drag. Healthy Rabi prospects and expected recovery in industrial activity are forecasted to support growth in 2025-26. Household consumption is expected to remain robust, aided by the tax relief in the Union Budget 2025-26, and fixed investment is expected to recover. Real GDP growth for 2025-26 is projected at 6.7 percent.%u2022%u0009 Headline inflation softened in NovemberDecember 2024 from its recent peak of 6.2 percent in October, driven by a decline in food inflation. Core inflation remained subdued, while the fuel group continued to be in deflation. Going forward, food inflation pressures are expected to soften significantly, and core inflation is expected to rise but remain moderate. CPI inflation for 2024-25 is projected at 4.8 percent, and for 2025-26 at 4.2 percent, with risks evenly balanced.Rationale for Monetary Policy Decisions:%u2022%u0009 The MPC noted the decline in inflation and the expectation of further moderation in 2025-26, supported by a favorable outlook on food and the continuing transmission of past monetary policy actions. Although growth is expected to recover from the low of Q2:2024-25, it remains below the previous year%u2019s level. The growthinflation dynamics opened policy space for the MPC to support growth while remaining focused on aligning inflation with the target. The MPC unanimously voted to reduce the policy repo rate by 25 basis points to 6.25 percent.%u2022%u0009 Excessive volatility in global financial markets and uncertainties about global trade policies, coupled with adverse weather events, pose risks to the growth and inflation outlook. This calls for the MPC to remain watchful. The MPC unanimously voted to continue with a neutral stance, providing flexibility to respond to the evolving macroeconomic environment.IIPThe Quick Estimates of Index of Industrial Production (IIP) recorded a growth of 5.2 percent in November 2024 as against 3.5 percent growth recorded in October 2024.