Key Points

A benign inflation outlook and moderate growth warrant a monetary policy to be growth-supportive, while remaining watchful about the rapidly evolving global macroeconomic conditions, said the Central Bank in its 2024-25 annual report.

“It will deploy an appropriate mix of instruments to modulate frictional as well as durable liquidity, ensuring orderly movement of money market interest rates,” said the Reserve Bank.

With inflation falling below the target in February and March 2025, supported by a sharp fall in food inflation, there is now greater confidence about a durable alignment of headline inflation with the target of 4.0 per cent over a 12-month horizon.

Accordingly, the RBI MPC in its April meeting unanimously voted to reduce the policy repo rate by 25 bps to 6.0 per cent. Moreover, the MPC also decided to change the stance from neutral to accommodative.

Inflation converged closer towards the target during 2024-25, aided by easing input cost pressures, proactive supply management measures by the government and continuing transmission of past monetary policy actions.

Headline inflation moderated to an average of 4.6 per cent during 2024-25 from 5.4 per cent in the previous year, largely driven by a moderation in core (CPI excluding food and fuel) inflation to 3.5 per cent and deflation in fuel at 2.5 per cent. The moderation in core inflation was broad-based across goods and services, said the RBI.

For the year as a whole, liquidity conditions remained in surplus as reflected in average daily net absorption under the liquidity adjustment facility (LAF), increasing to Rs 1,605 crore during 2024-25 from Rs 485 crore in the previous year.

The Reserve Bank conducted a suite of market operations, including open market operation (OMO) purchases, USD/INR buy/sell swaps, and longer tenor variable rate repo (VRR) operations, besides reducing the cash reserve ratio (CRR) by 50 bps (in two tranches of 25 bps each), to provide durable liquidity to the system.

- IANS