RBI Keeps Repo Rate Unchanged at 6.5%, Lowers GDP Growth Projection to 6.6%

Repo Rate Unchanged: In a crucial move to keep growth and inflation in balance, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) resolved to maintain the policy repo rate at 6.5% for the 11th successive meeting. This reflects caution from the central bank amid persistent economic challenges.

Repo Rate Stability is a Relief for Borrowers:

The repo rate, after February 2023, remains steady and the equated monthly instalments (EMIs) of borrowers on loans pegged to the EBLR will not rise. The neutral policy stance, therefore, shows the commitment of the RBI in fighting the inflationary forces without hampering growth.

Talking to the decision, RBI Governor Shaktikanta Das underlined the challenge of taming inflation amid global uncertainty. He said, “Heightened geopolitical tensions, market volatility, and elevated food prices pose significant risks to inflation and growth dynamics. The RBI is committed to fostering durable price stability for sustained growth.”

India’s retail inflation jumped to a 14-month high of 6.21% in October 2024, largely driven by the rising prices of food, especially vegetables. Still, the RBI expects inflation to ease up in the January-March quarter as seasonal harvests take place.

• FY25 Inflation Forecast: 4.8%
• Q3 FY25 Inflation Forecast: 5.7%
• Q4 FY25 Inflation Forecast: 4.5%
• Q1 FY26 Inflation Forecast: 4.6%

Slower GDP Growth in Focus

India’s FY25 GDP growth estimate has been reduced to 6.6% from the previous estimate of 7.2%. In Q3, GDP growth eased to 5.4%, which was the third successive quarter of slowdown. This is the lowest growth rate in seven quarters and represents subdued manufacturing, consumption, and private investment activities.
Q3 FY25 GDP Growth Estimate: 6.8%

• Q4 FY25 GDP Growth Projection: 7.2%

Key Takeaways from the MPC Meeting

1. Policy Stance: Neutral. This is to provide flexibility in tackling future challenges.
2. Economic Growth: Price stability as a prerequisite for sustainable growth.
3. Global Risks: Continued monitoring of geopolitical uncertainty and financial market volatility.

Implications for Borrowers and Investors

The unchanged repo rate is good news for borrowers, as home loan and other EMI rates won’t increase. However, investors should be watchful of inflation trends, which could influence future monetary policy decisions.

Outlook for the Indian Economy

The RBI’s cautious approach underscores the complexity of balancing growth aspirations with inflation management. With projections indicating easing inflation and improved GDP growth in the coming quarters, the Indian economy aims to navigate through the current challenges with resilience.