October 9, 2024
The MPC unanimously shifted from 'withdrawal of accommodation' to 'neutral' to balance inflation control with growth support
Standing deposit facility (SDF) rate remains at 6.25%, and the marginal standing facility (MSF) rate and Bank Rate at 6.75%
The RBI retained its real GDP forecast for FY25 at 7.2%, with adjustments in quarterly growth projections for Q2, Q3, and Q4
Inflation forecast for the fiscal year stays at 4.5%, though rising food prices and geopolitical risks are being closely monitored
The Reserve Bank of India’s Monetary Policy Committee (MPC) has decided to keep the repo rate steady at 6.5%, marking the tenth consecutive meeting without a rate cut. Announced by RBI Governor Shaktikanta Das, the decision reflects the central bank’s focus on achieving a sustainable alignment of inflation with its target while ensuring continued economic growth.
In a key policy shift, the MPC has changed its stance from ‘withdrawal of accommodation’ to ‘neutral’. This move gives the RBI greater flexibility to respond to evolving economic conditions and adjust its policies accordingly. The standing deposit facility (SDF) rate remains unchanged at 6.25%, while the marginal standing facility (MSF) rate and the Bank Rate continue at 6.75%.
The RBI has maintained its real GDP forecast for FY25 at 7.2%, adjusting its growth projections for the upcoming quarters. For Q2, growth is expected to be 7%, down from the earlier estimate of 7.2%. However, growth for Q3 and Q4 has been revised slightly upward to 7.4%. Meanwhile, Q1 FY26 is forecast to grow at 7.3%. Despite the optimism, some concerns linger, especially after Q1 FY25 growth reached 6.7%, slightly below expectations.
Inflation, particularly driven by food prices, remains a concern for the central bank, which has retained its inflation target of 4.5% for the current fiscal year. However, geopolitical tensions and the risk of rising crude oil prices could disrupt this outlook. Governor Das emphasised that the domestic growth outlook remains robust, driven by private consumption and investment, which allows the RBI to focus on inflation control.
The decision to hold rates was largely anticipated, with a poll conducted by a national daily, revealing that 80% of economists expected the RBI to maintain its stance. Experts note that domestic conditions remain key to monetary policy decisions as India navigates its inflation challenges. Despite signs of cooling in economic activity, such as lower vehicle sales and GST collections, the central bank believes the current rates are appropriate for supporting growth.
Economists noted that the RBI’s neutral stance suggests it is prepared to inject liquidity to support economic activities. While the inflation fight continues, especially in rural areas with high food prices, the central bank’s strategy remains to balance inflation control with sustaining economic momentum.
Source: Economic Times