RBI Holds Repo Rate at 6.5%

by The_unmuteenglish

New Delhi, 6 November 2024 – The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has maintained the repo rate at 6.5% for the 11th consecutive policy meeting, signaling caution amid persistent economic challenges. The unanimous decision reflects a neutral policy stance aimed at balancing inflationary pressures and growth dynamics.

RBI Governor Shaktikanta Das, announcing the outcome of the MPC meeting on Friday, highlighted the inflationary risks posed by geopolitical uncertainties and financial market volatility.

“High inflation erodes the purchasing power of rural and urban consumers, adversely impacting private consumption. Durable price stability is essential to lay the foundation for high growth,” Das stated. He reaffirmed the MPC’s commitment to restoring balance between inflation and growth, adding that the repo rate would remain at 6.5%.

The decision provides relief to borrowers, as external benchmark lending rates (EBLRs) linked to the repo rate will remain stable, ensuring no increase in equated monthly instalments (EMIs).

Slowing GDP Growth

India’s Gross Domestic Product (GDP) slowed to 5.4% in the second quarter (July-September) of FY25, marking the third consecutive quarter of deceleration. This is the lowest growth rate in seven quarters, with manufacturing, consumption, and private investments showing weakness. The last time GDP growth fell below this level was in the third quarter of FY23.

The RBI revised its GDP growth projection for FY25 to 6.6%, down from an earlier estimate of 7.2%. Growth for Q3 FY25 is expected to be 6.8%, with an improvement to 7.2% in Q4.

Inflation Forecast

Inflation for FY25 is projected at 4.8%, with a near-term spike anticipated in Q3 at 5.7%. However, it is expected to ease to 4.5% in Q4 and further decline to 4.6% in Q1 of FY26.

The persistent inflationary risks stem from overlapping shocks, Das explained, including geopolitical factors and market volatility. The MPC underlined its goal of ensuring durable price stability while fostering growth.

The meeting underscores the RBI’s cautious approach to navigating a challenging economic environment, balancing the needs of borrowers and broader macroeconomic stability.

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