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RBI Keeps Repo Rate Steady at 6.5%, Shifts Policy Stance to ‘Neutral’
RBI maintains status quo on repo rate; MPC revises policy stance to ‘neutral’ as inflation and growth projections remain steady.
In its latest monetary policy meeting held from October 7 to 9, 2024, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 6.5% for the tenth consecutive time. The decision was widely anticipated, as the central bank aims to maintain economic stability amid evolving inflation and growth scenarios.
Policy Stance Changed to ‘Neutral’
The significant shift in this meeting was the change in policy stance from “Withdrawal of Accommodation” to a more neutral stance. RBI Governor Shaktikanta Das explained that the move reflects a balanced approach to addressing the prevailing inflation dynamics and economic growth conditions.
“The prevailing and expected balance of inflation and growth has created a favorable environment for altering the monetary policy stance to ‘neutral,'” said Governor Das, highlighting the central bank’s commitment to tackling inflation while supporting economic expansion.
Focus on Inflation Control and GDP Projections
The RBI continues to keep inflation control at the forefront of its monetary policy. Retail inflation, measured by the Consumer Price Index (CPI), rose slightly to 3.65% in August but remained below the RBI’s median target of 4% for the second consecutive month. Despite a surge in prices for vegetables and pulses, inflation levels have moderated compared to earlier highs.
The central bank retained its GDP projection for the fiscal year 2025 (FY25) at 7.2%, while the CPI inflation forecast remains at 4.5%. The MPC noted that the agriculture sector is expected to perform well due to above-normal rainfall and strong reservoir levels, while manufacturing and services activities show steady growth.
GDP and Inflation Forecasts
The RBI expects real GDP growth for Q2 at 7%, Q3 at 7.4%, and Q4 at 7.4%. For Q1 of FY2025-26, GDP growth is projected at 7.3%. On the demand side, the MPC anticipates healthy kharif sowing and increased consumer spending during the festival season to boost private consumption. Consumer and business confidence have also shown improvements, supporting the economic outlook.
Liquidity Management Remains a Priority
The RBI emphasized its flexibility in managing liquidity operations to ensure adequate cash flow in the economy. Governor Das stated that the central bank would continue to be “nimble and flexible” in its approach to liquidity management, adapting to market conditions as needed.
With inflation and growth remaining within manageable limits, the RBI’s decision to maintain the repo rate and adjust its policy stance sets the tone for a balanced monetary strategy aimed at sustaining economic stability and fostering growth.
