RBI keeps repo rate unchanged at 6.5%, lowers FY25 GDP growth forecast

Reserve Bank of India Monetary Policy Committee: Food prices likely to keep headline inflation up in the near future

The Reserve Bank of India’s Monetary Policy Committee (RBI MPC) has decided to keep the repo rate unchanged at 6.5 per cent for the 11th consecutive time, Governor Shaktikanta Das announced on Friday. Meeting between December 4 and 6, MPC members voted 4:2 to maintain the status quo.

 

The RBI has maintained the repo rate at 6.5 per cent since February 2023. Despite calls for a rate cut, the central bank is focused on balancing inflation control with economic growth.

 

“MPC believes that only with durable price stability can we secure a strong foundation for high growth. MPC is committed to restoring inflation-growth balance in the interest of the economy,” Das said.

 

The standing deposit facility (SDF) rate remains at 6.25 per cent, while the marginal standing facility (MSF) rate and the bank rate remain at 6.75 per cent, the governor said.

 

The RBI MPC has also decided to keep its 'neutral' stance, with a majority of four members voting to maintain the stance. RBI Governor Das said this was to ensure that inflation aligned with the 4 per cent target while supporting growth. 

 

RBI’s real GDP projection

For financial year 2024-25 (FY25), RBI lowered its real gross domestic product (GDP) growth forecast to 6.6 per cent, down significantly from earlier projections of 7.2 per cent:

 

Q3 FY25: Revised to 6.8 per cent, down from 7.4 per cent 

Q4 FY25: Revised 7.2 per cent, earlier 7.4 per cent 

Q1 FY26: Revised to 6.9 per cent, down from 7.3 per cent 

Q2 FY26: 7.3 per cent

 

Food prices likely to keep inflation up in Q3

Inflation reached a 14-month high of 6.21 per cent in October, driven by high food prices as well as geopolitical disruptions that have severely affected global supply chains.

 

"Inflation increased sharply in September and October 2024, led by an unanticipated increase in food prices. Core inflation, though at subdued levels, also registered a pickup in October," Das said. However, he added that fuel growth remained in deflation for the 14th consecutive month in October.

 

The RBI MPC also expects food prices to keep headline inflation elevated in the October-December quarter. "A good rabi season would be critical to the softening of food inflation pressures... The estimates of record kharif production should bring relief to elevated prices of rice and tur dal in particular," Das said.

 

RBI CPI-based inflation projection

For financial year 2024-25 (FY25), RBI revised its projections for consumer price index (CPI)-based inflation to 4.8 per cent from 4.5 per cent:

 

Q3 FY25: Revised to 5.7 per cent, from 4.8 per cent 

Q4 FY25: Revised to 4.5 per cent, from 4.2 per cent 

Q1 FY26: Revised 4.6 per cent, from 4.3 per cent 

Q2 FY26: 4 per cent

 

"Manufacturing and service firms surveyed by the Reserve Bank point to firming up of input costs and selling prices in the January-March quarter," Das explained.

 

India’s GDP growth for Q2 FY25 slowed to 5.4 per cent, the lowest in two years, down from 8.1 per cent in the same period last year. It was also significantly lower than the RBI's own projections of 7 per cent for the quarter. The decline is attributed to weak performance in manufacturing and mining.