NEW DELHI: The Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 6.5% during its Monetary Policy Committee (MPC) meeting on Friday, December 6, 2024. This marks the 11th consecutive time the central bank has held the benchmark rate steady.
In its fifth bi-monthly monetary policy meeting for FY25, the Reserve Bank of India (RBI), led by Governor Shaktikanta Das, decided by a 4-to-2 majority to maintain a ‘neutral’ monetary policy stance. The MPC emphasized an unambiguous focus on ensuring the durable alignment of inflation with the target while continuing to support economic growth.
Das also announced a 50-basis-point cut in the cash reserve ratio (CRR), bringing it down to 4%. The measure aims to ease liquidity in the banking system as the country grapples with rising inflation and slowing economic growth.
The decision comes against the backdrop of India’s inflation rate surging to 6.2% in October, surpassing the RBI’s upper tolerance limit of 6%. Simultaneously, the country’s GDP growth decelerated to 5.4% in the July-September quarter, highlighting significant economic headwinds.
In the MPC meeting, inflation forecasts were raised, with the CPI inflation target for FY25 revised upward to 4.8% from 4.5%. Additionally, the limit for collateral-free agricultural loans was increased to ₹2 lakh per borrower, up from ₹1.6 lakh.
RBI Governor Das acknowledged that a portion of the depletion in forex reserves was due to valuation losses. Meanwhile, Deputy Governor Michael Patra pointed to supply-side challenges, particularly in manufacturing, as a major factor behind the GDP slowdown.
Governor Das stressed the potential for tighter liquidity in the coming months, emphasizing the balancing act required to maintain economic stability. “What banks do with CRR money is their call,” Das said, adding that the CRR cut is intended to provide flexibility to financial institutions.
On the global front, Deputy Governor Patra highlighted the potential ripple effects of US tariffs and warned that China might issue retaliatory measures, adding to the complexity of the economic environment.
This MPC meeting could be the last under Governor Das, whose term ends this month. While he was granted an extension in 2021 after his initial appointment in December 2018, there has been no official word on whether he will continue in office.
The RBI’s latest decisions underscore its cautious approach as it navigates inflationary pressures and economic slowdown while striving to maintain financial stability.