RBI MPC meet: Repo rate unchanged at 6.5%, FY25 GDP forecast revised to 7.2%

Reserve Bank of India (RBI) Governor Shaktikanta Das, in his monetary policy committee meeting announcements today, said the high-powered panel has decided to maintain the "status quo" on key repo rates by keeping it unchanged at 6.5%. This is the eighth time in a row that the RBI committee has decided to keep the repo rate unchanged.

In its bi-monthly policy announcement today, out of six members of the MPC, four voted in favour of having a status quo on the key lending rates, while two voted otherwise. 

"The Indian economy exhibits strong fundamentals, together with financial stability and positive growth momentum. Nevertheless, we need to remain vigilant in an unsettled global environment," says RBI Governor Shaktikanta Das.

He said as the Reserve Bank approaches its centenary year, RBI@100, it will gear up even more to remain future-ready for India’s fast growing economy.

In the MPC's rationale behind the decision, Das says the inflation-growth balance is moving favourably. "Growth is holding firm. Inflation continues to moderate, mainly driven by the core component which reached its lowest level in the current series in April 2024. The deflation in fuel prices is ongoing. Food inflation, however, remains elevated."

While the MPC took note of the disinflation achieved so far without hurting growth, Das says it remains vigilant to any upside risks to inflation, particularly from food inflation, which could possibly derail the path of disinflation. "Hence, monetary policy must continue to remain disinflationary and be resolute in its commitment to aligning inflation to the target of 4.0 per cent on a durable basis."

The RBI's MPC meeting comes just after the Lok Sabha Elections 2024 and before the upcoming Union Budget 2024. The RBI also kept the marginal standing facility and bank rate at the current levels of 6.75%.

Additionally, the MPC also revised its GDP forecast for FY2024-25, upgrading the estimates to 7.2% from 7% earlier, with Q1 FY25 GDP estimate at 7.3%, Q2 at 7.2%, Q3 at 7.3% and Q4 at 7.2%, respectively.

"Strengthening agricultural sector activity is expected to boost rural consumption. On the other hand, sustained buoyancy in services activity should continue to support urban consumption. The healthy balance sheets of banks and corporates; government’s continued thrust on capex; high capacity utilisation; and business optimism augur well for investment activity. External demand should get a fillip from improving prospects of global trade," says the RBI Governor.

Notably, in its annual report released on May 30, the RBI had said the Indian economy expanded at a robust pace in 2023-24. The central bank in the report had pegged the economic growth at 7% for FY25.

Meanwhile, according to estimates, the RBI may continue its "status quo" policy about key repo rates and focus on a "withdrawal of accommodation" stance in Q2 FY25 as well and resort to the repo rate cut only in Q3 FY25, predicated by advanced economy central bank rate actions. The RBI's next MPC meetings will be held on August 6-8, 2024.