RBI Monetary Policy: Inflation remains a concern; FY25 growth estimates trimmed-5 key highlights from RBI MPC outcome
RBI Monetary Policy: RBI kept the repo rate unchanged for the 11th consecutive meeting. It revised inflation estimates for FY25 upwards and GDP growth estimates downwards.
RBI Monetary Policy: Highlighting sticky inflation and its impact on economic growth and consumers, Reserve Bank of India (RBI) Governor Shaktikanta Das announced a status quo on the repo rate and policy stance on Friday, December 6. The Monetary Policy Committee (MPC) of the central bank, by a majority of 4:2, decided to keep the repo rate at 6.50 per cent for the 11th straight meeting. The RBI MPC decided unanimously to keep the policy stance at ‘neutral’.
The standing deposit facility (SDF) rate remains at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate remain at 6.75 per cent.
Let's take a look at the key highlights of the RBI MPC's December meeting outcome:
Repo Rates unchanged
RBI kept the benchmark repo rate unchanged at 6.5 per cent for the eleventh straight meeting and maintained the monetary policy stance ‘neutral’, taking note of the slowdown in growth momentum and lingering food inflation pressure.
A downward revision in FY25 GDP growth estimates
RBI revised the FY25 GDP growth estimates to 6.6 per cent from 7.2 per cent estimated earlier. This followed a surprise shock in Q2 when the GDP came at 5.4 per cent.
The central bank trimmed Q3FY25 GDP growth forecast to 6.8 per cent from 7.4 per cent, Q4FY25 GDP growth forecast to 7.2 per cent from 7.4 per cent, and Q1FY26 GDP growth forecast to 6.9 per cent from 7.3 per cent. The RBI expects GDP to grow at 7.3 per cent in Q2FY26.
RBI said high-frequency indicators suggest the slowdown in domestic economic activity bottomed out in Q2FY25 and has since recovered, aided by strong festive demand and a pick up in rural activities.
Upward revision in inflation estimates
The RBI believes inflation could reach its 4 per cent target by the second quarter of the next financial year.
It revised the FY25 inflation forecast to 4.8 per cent from 4.5 per cent earlier. It expects Q3FY25 inflation to be at 5.7 per cent against 4.8 per cent, as estimated earlier. Q4FY25 inflation estimates were revised to 4.5 per cent from 4.2 per cent, and Q1FY26 inflation estimates to 4.6 per cent from 4.3 per cent. Inflation in Q2FY26 is projected at 4 per cent.
Track RBI monetary policy meeting LIVE updated here
CRR cut by 50 bps
The RBI cut the cash reserve ratio (CRR) by 50 basis points to 4 per cent. This move is likely to ease liquidity conditions.
"It has been decided to reduce the cash reserve ratio (CRR) of all banks to 4.0 per cent of net demand and time liabilities (NDTL) in two equal tranches of 25 bps each with effect from the fortnight beginning December 14, 2024, and December 28, 2024," Governor Das said.
"This will restore the CRR to 4.0 per cent of NDTL, which was prevailing before the commencement of the policy tightening cycle in April 2022. This reduction in the CRR is consistent with the neutral policy stance and would release primary liquidity of about ₹1.16 lakh crore to the banking system," he added.
Interest rate ceilings on FCNRB increased
RBI has decided to raise interest rate ceilings on FCNR-B deposits, effective immediately, along with increasing FCNR deposit rates to make India a more attractive destination for foreign investments.
"In order to attract more capital inflows, it has been decided to increase the interest rate ceilings on FCNR(B) deposits. Accordingly, effective from today, banks are permitted to raise fresh FCNR(B) deposits of 1 year to less than 3 years maturity at rates not exceeding the ceiling of overnight Alternative Reference Rate (ARR) plus 400 bps as against 250 bps at present," said Das.
"Similarly, for deposits of 3 to 5 years maturity, the ceiling has been increased to overnight ARR plus 500 bps as against 350 bps at present. This relaxation will be available till March 31, 2025," Das said.
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