What will be RBI'S response in the midst of growth vs inflation?

The Reserve Bank of India's (RBI) Monetary Policy Commitee (MPC) is set to meet from February 5-7 to decide whether to change or continue the current Repo rate at 6.50%.

- Dr. T. K. Jayaraman

This rate, which was introduced in April 2023 as part of anti-inflationary measures, has been a topic of debate. In November of last year, both the Minister for Industries and the Finance Minister attributed the economic slowdown marked by a 5.4% GDP growth in the July-September quarter of FY 2025, down from 6.7% in the April-June quarter to the high Repo rate. The Industries Minister suggested that food inflation be excluded from the retail inflation calculation, while the Finance Minister emphasized that the interest rate should be more "affordable".

The GDP growth rate for the October-December quarter will be released on February 28, after the MPC meeting. However, the first MPC meeting under the new Governor, Sanjay Malhotra, who assumed office on December 10, will rely on the GDP growth data from July-September. Similarly, the MPC meeting will also have to base its decisions on December inflation data, as the January inflation report will only be available on February 12. The January inflation figures are particularly significant, given the appreciation of the US dollar since mid-2024, with its likely impact on domestic price level, through rise in import prices

The rising power of the US Dollar

Since October, the US dollar has experienced a steady increase in value against nearly all global currencies. This rise is largely attributed to Donald Trump's campaign for a second presidential term, where he revived his "Make America Great Again" (MAGA) platform. As part of his campaign, he proposed reducing corporate taxes from 25% to 15% and bringing US-based production back from China, backed by tariffs and other protectionist policies. These promises have made the dollar stronger even before the elections.