RBI Monetary Policy Meeting Highlights: MPC keeps repo rate unchanged, cuts CRR to 4%; GDP FY25 outlook revised down to 6.6%
RBI Governor Shaktikanta Das announced on Friday that the Monetary Policy Committee had decided to keep the repo rate at 6.5% with a 4:2 majority. The RBI governor stated that, while the MPC has taken note of the GDP growth data for Q2 FY2025 and will revise the growth outlook for the fiscal year downward, inflation remains the primary focus area. The real GDP growth forecast for FY25 has been revised significantly downward, from 7.2% to 6.6%.
Key Takeaway
Policy Rates
The Reserve Bank of India (RBI) in its December 2024 Monetary Policy Committee (MPC) meeting decided to keep key policy rates unchanged
- Repo Rate: Held steady at 6.5%, aligning with its objective to curb inflation while supporting economic growth.
- Standing Deposit Facility (SDF): Maintained at 6.25%, providing a floor for overnight interest rates.
- Marginal Standing Facility (MSF) and Bank Rate: Both remain unchanged at 6.75%.
This decision reflects the RBI’s continued stance of “withdrawal of accommodation,” aimed at progressively aligning inflation with the target while fostering economic stability. The unchanged rates also indicate that the effects of previous rate hikes are still being observed in the economy.
Inflation Outlook
(RBI) highlighted a mixed inflation outlook in its December 2024 monetary policy statement:
Current Volatility: Headline inflation remains volatile, primarily due to recurring food price shocks and external uncertainties such as global market fluctuations and geopolitical tensions.
Medium-Term Projection: The RBI expects inflation to moderate over the medium term. Key factors contributing to this optimism include:
- Robust foodgrain stocks: Adequate reserves to stabilize supply.
- Favorable crop conditions: Anticipated improvements in agricultural production.
The central bank emphasized vigilance in monitoring inflation drivers, particularly any generalization of food price pressures, while reiterating its commitment to achieving the inflation target.
Growth Projections
(RBI) December 2024 Monetary Policy update, the following is the status of India’s GDP growth rate:
Current Projection for FY24: The RBI has retained the GDP growth forecast at 6.5%, reflecting resilience in the domestic economy driven by strong private consumption and investment demand.
Growth Outlook for FY25: The GDP growth forecast has been slightly revised down to 6.6% from the earlier projection of 6.8%. This adjustment accounts for global uncertainties and tighter financial conditions but is still considered robust
The RBI noted that momentum from improved rural demand and festive activities supports the economy, while risks from global factors remain manageable. The next detailed assessment is expected in the February 2024 MPC meeting.
The Reserve Bank of India (RBI) expressed a positive outlook for domestic growth in its December 2024 policy review:
- Resilient Growth: India’s growth remains robust, supported by strong private consumption and investment demand.
- Optimism in Sentiments: Enhanced business and consumer confidence is expected to strengthen investment momentum and further drive economic activities.
- Supportive Factors: Improvements in supply chain constraints, policy support, and favorable monsoon outcomes have bolstered the economic recovery.
While global challenges persist, such as geopolitical risks and international market volatility, the RBI remains confident in India’s ability to sustain growth through domestic demand and investment-driven activities.
New Regulatory Frameworks
The Reserve Bank of India (RBI) announced plans to implement a unified regulatory framework for “connected lending” in its December 2024 policy statement. This initiative aims to:
- Improve Credit Management: Streamline and strengthen credit pricing and risk management across regulated entities, including banks and financial institutions.
- Address Risks: Tackle issues related to excessive exposure and lending biases within connected groups, enhancing the overall stability of the financial system.
- Harmonize Regulations: Provide a consistent approach to identifying and mitigating risks associated with related-party transactions.
The RBI highlighted that this framework will promote transparency and accountability, ensuring a fair and sustainable credit ecosystem.
Summary
The RBI retained the repo rate at 6.5% in its December 2024 meeting, maintaining a “withdrawal of accommodation” stance. FY24 GDP growth remains at 6.5%, while FY25 was revised to 6.6%. Inflation is projected to moderate despite volatility from food prices and global risks. Regulatory frameworks will strengthen credit management.
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