The Reserve Bank of India’s Monetary Policy Committee (RBI MPC) has decided to keep the repo rate unchanged at 6.5 percent for the 11th consecutive time, Governor Shaktikanta Das announced on Friday. Meeting between December 4 and 6, MPC members voted 4:2 to maintain the status quo.
The RBI has maintained the repo rate at 6.5 percent since February 2023. The central bank is focusing on balancing inflation control with economic growth, despite calls for a rate cut.
“MPC believes that only with durable price stability can we secure a strong foundation for high growth. MPC is committed to restoring inflation-growth balance in the interest of the economy,” Das said.
The standing deposit facility (SDF) rate remains at 6.25 percent, while the marginal standing facility (MSF) rate and the bank rate remain at 6.75 percent, the governor said.
The RBI MPC has also decided to keep its 'neutral' stance, with a majority of four members voting to maintain the stance. RBI Governor Das said this was to ensure that inflation aligned with the 4 percent target while supporting growth.
RBI’s real GDP projection
For financial year 2024-25 (FY25), RBI lowered its real gross domestic product (GDP) growth forecast to 6.6 percent, down significantly from earlier projections of 7.2 percent.
For the third quarter (Q3) of FY25, the growth projection has been lowered to 6.8% from 7.4%, while for the fourth quarter (Q4), it has been revised to 7.2% from the earlier 7.4%. Looking ahead to FY26, the GDP growth forecast for the first quarter (Q1) has been reduced to 6.9% from 7.3%, while the second quarter (Q2) is projected to grow at 7.3%.
Food prices likely to keep inflation up in Q3
Inflation reached a 14-month high of 6.21 percent in October, driven by high food prices as well as geopolitical disruptions that have severely affected global supply chains.
"Inflation increased sharply in September and October 2024, led by an unanticipated increase in food prices. Core inflation, though at subdued levels, also registered a pickup in October," Das said. However, he added that fuel growth remained in deflation for the 14th consecutive month in October.
The RBI MPC also expects food prices to keep headline inflation elevated in the October-December quarter. "A good rabi season would be critical to the softening of food inflation pressures... The estimates of record kharif production should bring relief to elevated prices of rice and tur dal in particular," Das said.
RBI CPI-based inflation projection
The Reserve Bank of India (RBI) has updated its consumer price index (CPI)-based inflation projections for the financial year 2024-25 (FY25), raising the forecast to 4.8% from the earlier estimate of 4.5%. For the third quarter (Q3) of FY25, the inflation projection has been significantly increased to 5.7% from 4.8%, while the fourth quarter (Q4) has been revised to 4.5% from 4.2%.
Looking ahead to FY26, the first quarter (Q1) inflation estimate has been adjusted to 4.6% from 4.3%, and the second quarter (Q2) is projected at 4%.
"Manufacturing and service firms surveyed by the Reserve Bank point to firming up of input costs and selling prices in the January-March quarter," Das explained.
India’s GDP growth for Q2 FY25 slowed to 5.4 percent, the lowest in two years, down from 8.1 percent in the same period last year. It was also significantly lower than the RBI's own projections of 7 percent for the quarter. The decline is attributed to weak performance in manufacturing and mining.
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