RBI keeps repo rate intact, lowers GDP forecast to 6.6%

The Reserve Bank of India’s monetary policy committee (MPC) on Friday kept the benchmark interest rate unchanged at 6.5 per cent for the 11th straight policy meeting.

EMIs to be unchanged

6.5% Unchanged repo rate means relief for borrowers as EMIs won’t increase

4.8% Retail inflation forecast for current fiscal from 4.5% projected earlier

4% CRR (bank cash kept with RBI) cut from 4.5%; to unlock Rs 1.16L cr bank funds

The RBI, however, cut the gross domestic product (GDP) forecast to 6.6 per cent for the current financial year from its earlier projection of 7.2 per cent.

The RBI has maintained the repo rate at 6.5 per cent since February 2023. With the repo rate unchanged, all external benchmark lending rates (EBLR) that are linked to the repo rate will not increase, giving the borrowers some relief as their equated monthly instalments (EMIs) will not go up. “High inflation reduces the disposable income in the hands of consumers and dents private consumption, which negatively impacts the real GDP growth. The increasing incidence of adverse weather events, heightened geo-political uncertainties and financial market volatility pose upside risks to inflation. The MPC believes only with durable price stability can strong foundations be secured for high growth,” observed Das.

The MPC, he said, was committed to restoring the inflation growth balance in the overall interest of the economy and had decided to keep the policy repo rate unchanged at 6.50 per cent.

The committee decided to retain the “neutral” stance of the monetary policy. Four of the six members of the panel voted for a status quo in rate.

Driven by a sharp increase in prices of food products, particularly vegetables, India’s retail inflation touched a 14-month high in October. The inflation based on the consumer price index increased to 6.21 per cent in October, up from 5.49 per cent in September.

The RBI Governor added that food inflation pressures were likely to linger in the third quarter (Q3) of this financial year (2024-25) and start easing only from the fourth, backed by seasonal correction in vegetables prices, kharif harvest arrivals, likely good rabi output and adequate cereal buffer stocks.

Inflation for FY25 had been projected at 4.8 per cent. For Q3, it was expected to rise to 5.7 per cent, but anticipated to decline to 4.5 per cent in Q4. For Q1 FY26, inflation had been forecast at 4.6 per cent, he said.

The real GDP growth for FY25 had now been projected at 6.6 per cent. For Q3, the growth rate was expected to be 6.8 per cent, while in Q4 it was anticipated to rise to 7.2 per cent.