RBI Monetary Policy: MPC Keeps Repo Rate Unchanged, GDP Growth Forecast, CRR Cut

India's Monetary Policy Committee, led by RBI Governor Shaktikanta Das, kept the benchmark repo rate unchanged and also maintained its neutral stance.

To ease potential liquidity stress, cash reserve ratio has been cut by 50 basis points to 4%.

After the review, the MPC decided the following on lending rates:

• To keep the repo rate unchanged at 6.5% with a majority of 4:2.

• The standing deposit facility rate, pegged 25 basis points below the repo rate, is at 6.25%.

• The marginal standing facility rate, which is 25 basis points above the repo rate, is 6.75%.

The MPC remains committed to retaining the growth-inflation balance in the overall interest of the economy.

Inflation Outlook

Inflation surged to exceed the RBI's target range of 4(+/-2)% but is expected to ease in the coming months, amid fresh market arrivals.

Lingering food price pressures are expected to keep prices elevated in the near term. Rabi crop outlook remains robust given early indications. Vegetable prices are also likely to see seasonal winter correction.

• Going forward, food inflation is likely to soften in fourth quarter with seasonal easing of vegetables prices and kharif harvest arrivals; and good soil moisture conditions along with comfortable reservoir levels auguring well for rabi production.

• Adverse weather events and rise in international agricultural commodity prices, however, pose upside risks to food inflation. Even though energy prices have softened in the recent past, its sustenance needs to be monitored.

• Businesses expect pressures from input costs to remain elevated and growth in selling prices to accelerate from Q4.

Growth Outlook

GDP growth came in at a seven-quarter low of 5.4% in the July-September quarter 2024 quarter. The decline was primarily led by deceleration in industrial GVA, Das said. Slowdown in high frequency indicators suggests bottoming out in the second quarter, he added. GDP growth is expected to see a pick-up in the second half of the fiscal.

• Looking ahead, robust kharif foodgrain production and good rabi prospects, coupled with an expected pickup in industrial activity and sustained buoyancy in services augur well for private consumption.

• Investment activity is expected to pick up.

• Resilient world trade prospects should provide support to external demand and exports.

• Headwinds from geo-political uncertainties, volatility in international commodity prices, and geo-economic fragmentation continue to pose risks to the outlook.