The Reserve Bank of India (RBI) has decided to maintain the repo rate at 6.5 percent for the 11th consecutive time, citing persistent inflationary pressures and a slowdown in economic growth. The announcement came after the six-member Monetary Policy Committee (MPC) voted 4:2 in favor of keeping the key lending rate unchanged.
RBI Governor Shaktikanta Das emphasized that inflation remains above the central bank’s tolerance level of 6 percent, with October figures crossing this threshold. While food inflation is expected to ease in the January-March quarter, the MPC reiterated the importance of durable price stability for fostering sustainable economic growth.
“Inflation surged above the 6 percent tolerance level in October. The MPC believes only with durable price stability can strong foundations be secured for high growth,” Das said.
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Monetary Policy Statement by Shri Shaktikanta Das, RBI Governor – December 06, 2024, at 10 am https://t.co/ffu20k9GVl
— ReserveBankOfIndia (@RBI) December 6, 2024
Economic Growth Target Lowered
The RBI revised its GDP growth projection for the current fiscal year downward to 6.6 percent, from the earlier estimate of 7.3 percent. This adjustment follows a disappointing Q2 growth figure of 5.4 percent, significantly lower than projections. The central bank attributed this slowdown to reduced global demand and domestic consumption challenges.
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The decision to maintain the rate has disappointed investors, who were anticipating a rate cut to stimulate economic activity following the sharp Q2 slowdown.
Despite domestic challenges, Governor Das highlighted the resilience of the global economy in 2024, which has so far avoided a major slowdown. However, he stressed that India’s growth trajectory depends on managing inflation and supporting key sectors.
Repo Rate Stability Since April 2023
The current pause on rate hikes began in April 2023, following six consecutive increases totaling 250 basis points since May 2022. This policy stance aims to balance the need for economic growth with inflation control.
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With the repo rate unchanged, borrowing costs, including home loans and business loans, are likely to remain stable. However, the unchanged rate also signals that the RBI is prioritizing inflation management over immediate economic stimulus, reflecting caution in its monetary policy approach.
The RBI’s focus on controlling inflation while adjusting growth targets underscores its commitment to long-term economic stability. As food inflation is expected to ease in early 2024, the central bank is likely to reassess its stance in subsequent MPC meetings.
For now, the policy suggests a wait-and-watch approach, as the RBI monitors both domestic and global economic developments.
