MPC Meet: RBI maintains 'status quo' on repo rate; retains inflation, GDP forecast

Reserve Bank of India (RBI) Governor Shaktikanta Das, in his announcements today after two-day deliberations by the Monetary Policy Committee (MPC), said the committee has decided to keep the benchmark "repo rate" unchanged at 6.5%, a record ninth time straight.

He informed that the committee members, with a vote of 4-2, decided to maintain the status quo on the policy rates and its "withdrawal of accommodation stance". The RBI governor says the marginal standing facility (MSF) and the standard deposit facility (SDF) rates also remain unchanged at 6.75% and 6.25%, respectively.

"The commitment of the Monetary Policy Committee to ensure price stability would strengthen the foundations for a period of sustained growth. This point needs to be appreciated that ensuring price stability eventually results and supports a period of sustained growth," says the RBI Governor.

As per Das, the RBI's forecast for the country's economic growth also remains "unchanged" at 7.2%. The economic growth in Q1 is pegged at 7.1%, Q2 at 7.2%, Q3 at 7.3%, and Q4 at 7.2%. "Real GDP growth for Q1 of 2025-26 is projected at 7.2%". He says the MPC is of the view that price stability is important to support growth. "Without price stability, high growth can not be sustained, especially in a situation where our GDP growth is holding up well."

Similarly, the inflation forecast also remains the same at 4.5% for FY25. "Q2 inflation is seen at 4.4%, Q3 at 4.7% and Q4 at 4.3%." He said inflation had surged to 5.1% in June after remaining steady at 4.8% in May and April 2024. Das says both inflation and GDP growth are "evolving in a balanced manner", though he cautions that there's a need to remain vigilant with regard to volatility in "food prices".

"Domestic economic activity continues to be resilient. On the supply side, steady progress in southwest monsoon, higher cumulative Kharif sowing and improving reservoir levels auger very well for Kharif output. The likelihood of the La Nina condition developing in the second half of the monsoon season is likely to have a bearing on agricultural production in the financial year. Manufacturing activity continues to gain ground on the back of improving domestic demand. IIP growth accelerated this year," says the RBI Governor.

Several banks and brokerages had expected the RBI to maintain the 'status quo' when it comes to key lending repo rates, primarily due to high food prices. The RBI has kept key lending rates unchanged for the past 17 months since February 2023. Between May 2022 and February 2023, the repo rate was hiked six times from 4 to 6.5%. In June 2024, too, the RBI had decided to maintain the "status quo" on key repo rates by keeping it unchanged at 6.5%. The MPC had also revised its GDP forecast for FY2024-25, upgrading the estimates to 7.2% from 7% earlier.