RBI MPC Outcome: Inflation Remains a Concern, FY25 Growth Estimates Cut – 5 Key Highlights

Photo : Bloomberg

The Reserve Bank of India (RBI) has decided to keep its key interest rates the same for the 11th time in a row. Governor Shaktikanta Das made the announcement on Friday, December 6, 2024. The central bank has kept the repo rate at 6.50%, which is the rate at which banks borrow money from RBI. The decision was made by the Monetary Policy Committee (MPC) of RBI, with 4 members in favor and 2 against it. The RBI also decided to keep the overall policy stance “neutral,” which means it will not change the way it handles the economy for now.

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Here are the key updates from the RBI’s December meeting:

1. Repo Rate Stays the Same
   The RBI has decided to keep the repo rate at 6.50% because the economy is growing slower, and food prices are still high. The RBI is trying to keep inflation (the rise in prices) under control while also supporting economic growth. They believe this is the best approach for the moment.

2. Lower GDP Growth Estimate for FY25
   The RBI has reduced its growth estimate for the Indian economy in the financial year 2025 (FY25). Earlier, the RBI had predicted the economy would grow by 7.2%, but now they expect a lower growth rate of 6.6%. This change happened because the economy grew slower than expected in the second quarter of FY25, where it only grew by 5.4%. The RBI also lowered the growth estimates for the last few months of FY25 and the first quarter of FY26.

3. Higher Inflation Estimate
   The RBI has raised its inflation estimate for FY25. It now expects inflation to be 4.8% instead of the earlier 4.5%. In the third quarter of FY25, inflation is expected to be 5.7%, higher than what was estimated before. However, the RBI still believes inflation will drop to 4% by the second quarter of FY26, which is its target rate.

4. Cut in Cash Reserve Ratio (CRR)
   The RBI has decided to reduce the Cash Reserve Ratio (CRR) by 0.50%. The CRR is the amount of money that banks need to keep with the RBI, and this decision will free up ₹1.16 lakh crore for the banks. This will help banks have more money to lend to businesses and people, which could boost the economy.

5. Increase in Interest Rates on Foreign Currency Deposits
   The RBI has increased the interest rate limits on Foreign Currency Non-Resident (FCNRB) deposits. This will encourage more foreign investments in India. Banks can now offer higher interest rates on certain foreign currency deposits. This is expected to attract more foreign money into the country.

These decisions show that the RBI is trying to balance inflation control with supporting the economy. While the economy is growing slower than expected, the RBI is making sure that there is enough money in the system to help businesses and people. The RBI is also working to keep prices stable and ensure that the country’s growth continues in a healthy way.