RBI policy: MPC keeps repo rate unchanged at 6.5%, shifts stance to neutral

Governor Shaktikanta Das said that India's real GDP grew by 6.7 per cent in Q1. For FY25, the RBI kept its GDP projection unchanged at 7.2 per cent

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Wednesday, October 9, kept the repo rate unchanged at 6.5 per cent for the tenth consecutive meeting, with a majority vote of 5-1. The MPC, however, unanimously decided to change its stance to "neutral" from the earlier "withdrawal of accommodation".

The MPC began its three-day meeting on October 7 to discuss the fourth bi-monthly monetary policy for FY25.

Five out of six MPC members voted in favour of maintaining the current rate.

Consequently, Das announced that the standing deposit facility (SDF) rate was kept at 6.25 per cent, while the marginal standing facility (MSF) rate and the bank rate remained at 6.75 per cent.

 

“Domestic growth has sustained its momentum, and the global economy has remained resilient since our last meeting. However, downside risks persist due to geopolitical conflicts, financial market volatility, and elevated public debt. On a positive note, world trade is showing signs of improvement,” the RBI Governor said in his monetary policy statement.

A neutral stance allows the RBI to adjust interest rates according to inflation trends, unlike the previous approach of withdrawing accommodation, which ruled out the option of cutting rates.

RBI’s GDP projection

Governor Das stated that India’s real GDP grew by 6.7 per cent in Q1. For FY25, the RBI kept its gross domestic product (GDP) projection unchanged at 7.2 per cent. The Q2 projection also remained at 7.2 per cent, as before. However, the projection was raised for Q3 to 7.4 per cent from 7.3 per cent and for Q4 to 7.4 per cent from 7.2 per cent.

For Q1 of FY26, the RBI expects GDP growth at 7.3 per cent, up from the earlier 7.2 per cent.

Q1FY25: 6.7 per cent
Q2: 7.2 per cent
Q3: 7.4 per cent
Q4: 7.4 per cent

Q1FY26: 7.3 per cent

Das highlighted that manufacturing is showing signs of slowing down while the services sector remains robust.

RBI’s inflation projection

The RBI Governor said that the MPC decided to remain “watchful” of the evolving outlook in the coming months. “The global economy has remained resilient since the last meeting of the MPC in August,” he said.

The MPC projected inflation at 4.5 per cent for FY25, the same as previously forecast. On a quarterly basis, the Consumer Price Index (CPI) inflation forecast is projected at 4.1 per cent in Q2, expected to rise to 4.8 per cent in Q3, then 4.2 per cent in Q4, and 4.3 per cent in Q1 of FY26.

CPI inflation projections: 
Q2: at 4.1 per cent

Q3: Expected to rise to 4.8 per cent

Q4: will come down to 4.2 per cent

Q1FY26: projected at 4.3 per cent

Meanwhile, the RBI said that the headline inflation declined sharply to 3.6 in July and 3.7 per cent in August from the earlier 5.1 per cent in June. "Going forward, the September inflation print may see a significant pick-up as base effects turn adverse and food prices register an upturn. Food inflation, however, is expected to ease by Q4:2024-25 on better kharif arrivals and rising prospects of a good rabi season," Das said.
 

The RBI also noted that core inflation is likely to stay contained. Current and anticipated inflation trends contributed to the change in stance. The central bank highlighted its efforts to curb inflation, successfully bringing it within the target range.

Governor Das indicated that the September CPI is likely to see a sharp increase, driven by unfavorable base effects and rising food prices. He forecasted that headline inflation would gradually ease in the fourth quarter, but warned that unexpected weather events and geopolitical tensions remain significant risks that could push inflation higher. He added that the recent rise in food and metal prices, if it continues, could heighten the upward risks to Consumer Price Index (CPI) inflation.

Who are the newly appointed RBI MPC members?

In early October, the central government appointed three new external members to the RBI's six-member Monetary Policy Committee. The new members include economist Saugata Bhattacharya, Nagesh Kumar, Director and Chief Executive of the Institute for Studies in Industrial Development, and Ram Singh, Director of the Delhi School of Economics at the University of Delhi. They now serve alongside Governor Shaktikanta Das, Executive Director Rajiv Ranjan, and Deputy Governor Michael Debabrata Patra on the committee.

Bhattacharya, Kumar, and Singh replaced outgoing members Ashima Goyal, Shashanka Bhide and Jayanth R. Varma.