RBI keeps repo rate unchanged at 6.50 pc, lowers GDP growth forecast for FY25

MUMBAI: The Reserve Bank of India (RBI)'s Monetary Policy Committee (MPC) on Friday decided yet again to maintain status quo on repo rate in the wake of elevated inflation.

The rate-setting panel voted to keep the policy repo rate unchanged at 6.50% for the 11th consecutive time.

This means there would not be any change in home loan EMIs or borrowing cost for the industry.

"After detailed assessment of the evolving macroeconomic and financial developments and the outlook, the Monetary Policy Committee (MPC) decided by a 4:2 majority to keep the policy repo rate unchanged at 6.5%. Consequently, the standing deposit facility (SDF) rate remains at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%," RBI Governor Shaktikanta Das said while announcing the bi-monthly monetary policy.

The RBI has kept the key lending rate unchanged since February 2023, citing persistent inflation pressures. In October this year, retail inflation climbed to 6.2% breaching the RBI's upper tolerance level. High inflation reduces disposable income in the hands of consumers and dents private consumption, which negatively impacts the real GDP growth.

Commenting on monetary policy, ICRA chief economist Aditi Nayar said, "The MPC's decision to keep the repo rate unchanged was along expected lines, with the CPI inflation exceeding the MPC's upper threshold of 6.0%. However, the cut in the cash reserve ratio (CRR) by 50 bps would help support growth after the sharp downward revision in the forecast for FY2025. If the CPI inflation retraces to below 5.0% by the Dec 2024 print, the likelihood of a repo cut in Feb 2025 will rise sharply."

Meanwhile, the Monetary Policy Committee also decided unanimously to continue with the neutral stance and to remain unambiguously focussed on a durable alignment of inflation with the target while supporting growth.

The rate-setting panel met on 4th, 5th and 6th of December 2024.

The RBI Governor said that the MPC took note of the recent slowdown in the growth momentum which translates into a downward revision in the growth forecast for the current year 2024-25.

"Going forward into the second half of this year and the next year, the MPC assessed the growth outlook to be resilient but warranting close monitoring," he said.

The chorus for a cut in repo rates has, however, been growing in recent times with economic growth moderating. Union Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal had last month raised concerns about high interest rates and called for making it affordable. The remarks came amid some of the high-frequency economic indicators suggesting a slowdown in the economy.

The National Statistical Office (NSO) has pegged GDP growth in the July-September quarter (Q2) of the current financial year 2024-25 at a seven-quarter low of 5.4%. The GDP had expanded at 6.7% in the June quarter of the current fiscal year and at 8.1% in Q2 of 2023-24.

"Notwithstanding the recent aberration in growth and inflation trajectories, the Indian economy continues its journey on a sustained and balanced path towards progress," the RBI Governor said while making the monetary policy statement.

With Q2 growth moderating, the RBI has lowered the growth forecast for FY25 to 6.60% from 7.2% earlier.

"....real GDP growth for 2024-25 is projected at 6.6% with Q3 at 6.8%; and Q4 at 7.2%. Real GDP growth for Q1:2025-26 is projected at 6.9%; and Q2 at 7.3%. The risks are evenly balanced," Das said.

The Governor said that food inflation is likely to soften going forward in Q4 with seasonal easing of vegetables prices and kharif harvest arrivals.

The central bank has projected retail inflation for 2024-25 at 4.8% with Q3 at 5.7% and Q4 at 4.5%.