RBI Keeps Repo Rate Unchanged at 6.5% in December 2024

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The Reserve Bank of India (RBI) has announced its monetary policy decision for December 2024, with the key highlight being the decision to keep the benchmark repo rate unchanged at 6.5%. This marks the eleventh consecutive meeting where the RBI’s Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, has opted for a status quo on the repo rate. The MPC also maintained its “Neutral” stance, signaling its cautious approach to managing inflation and promoting economic growth.

Key Decisions from the RBI’s December 2024 Monetary Policy

  1. Repo Rate Unchanged at 6.5%
    The RBI has decided to maintain the repo rate at 6.5%, continuing its trend of holding rates steady despite the challenging economic environment. The decision comes amid growing concerns over inflation and the need to support economic growth, especially with global headwinds affecting India’s economy.
  2. Inflation Forecast for FY25 at 4.8%
    The RBI has revised its inflation forecast for FY25, projecting an average inflation rate of 4.8%. The central bank also provided quarterly inflation estimates for the coming fiscal years:
    • Q3FY25: 5.7%
    • Q4FY25: 4.5%
    • Q1FY26: 4.6%
    • Q2FY26: 4%
    These projections reflect the RBI’s continued focus on bringing inflation back within its target range while also ensuring that inflationary pressures do not derail economic recovery.
  3. GDP Growth Forecast for FY25 at 6.6%
    In terms of growth, the RBI has forecast GDP growth for FY25 at 6.6%. The central bank also provided revised quarterly GDP growth estimates:
    • Q3FY25: 6.8%
    • Q4FY25: 7.2%
    • Q1FY26: 6.9%
    • Q2FY26: 7.3%
    These projections suggest that the Indian economy is expected to regain momentum in the coming quarters, supported by factors like improved domestic demand and global economic stabilization.
  4. RBI’s Emphasis on Price Stability and Growth
    Governor Shaktikanta Das highlighted the importance of balancing price stability with growth. He noted that while managing inflation remains crucial, ensuring robust economic growth is equally important. Das acknowledged that the final stage of disinflation has been challenging, but reaffirmed that the RBI’s policies will continue to target durable disinflation.

What Does the “Neutral” Policy Stance Mean?

By maintaining a “Neutral” policy stance, the RBI signals that it is adopting a wait-and-watch approach, balancing concerns about inflation with the need to support economic growth. The Neutral stance allows flexibility in future policy decisions, depending on how economic conditions evolve, especially in response to domestic and global developments.

Potential Future Policy Adjustments

While the RBI has kept the repo rate unchanged for now, market experts are speculating that a reduction in the Cash Reserve Ratio (CRR) could be on the cards. A CRR cut would help inject liquidity into the banking system, promoting easier access to credit and supporting economic activity. However, the RBI is likely to be cautious about such moves to avoid exacerbating inflationary pressures.

Conclusion

The RBI’s decision to keep the repo rate at 6.5% and maintain a Neutral stance reflects the ongoing challenges of managing inflation while fostering economic growth. With inflation forecasts hovering around 4.8% and GDP growth expected to reach 6.6% in FY25, the RBI is walking a fine line between stimulating growth and containing inflation. As the Indian economy continues to recover, all eyes will be on the next steps the RBI takes in future monetary policy meetings.

Stay tuned for more updates and expert analysis on the RBI’s policy decisions and their impact on the economy.