MPC meet key takeaways: RBI cuts GDP growth projection to 6.6%; policy repo rate unchanged at 6.5%

The RBI cut the GDP growth projection to 6.6 per cent for current financial year, from earlier forecast of 7.2 per cent.

RBI Governor Shaktikanta Das on Friday announced that the Monetary Policy Committee has decided to keep the policy repo rate unchanged at 6.6 per cent. This was decided in a majority 4:2 vote.

"After detailed assessment of the evolving macroeconomic and financial developments and the outlook, the Monetary Policy Committee decided by a majority of 4:2 to keep the policy repo rate unchanged at 6.5 per cent. Consequently, the Standing Deposit Facility (SDF) rate remains at 6.25 per cent and the Marginal Standing Facility (MSF) rate and the bank rate 6.75 per cent," he said in the presser.

To ease the potential liquidity stress, the Reserve Bank slashed Cash Reserve Ratio (CRR) by 50 basis points to 4 per cent, a move that would unlock Rs 1.16 lakh crore bank funds.

The RBI on May 4, 2022 had raised CRR to 4.5 per cent from 4 per cent in an off-cycle Monetary Policy Committee (MPC) meeting, with effect from May 21 the same year.

Meanwhile, the RBI also cut the GDP growth projection to 6.6 per cent for current financial year, from an earlier forecast of 7.2 per cent.

System liquidity, as represented by the net position under the Liquidity Adjustment Facility (Net LAF), continued to remain in surplus during October and November on account of higher government spending, despite a significant increase in currency in circulation during the festive season and capital outflows, RBI Governor Shaktikanta Das said tranches of 25 basis points each, kicking in on December 14 and December 28.

Amidst reshaping of the global economy, India is well positioned, the Governor added.

Elaborating on the decisions and deliberations of the MPC, he said that inflation surged above 6 per cent in October, adding that the MPC is committed to restoring the inflation growth balance. He also declared that RBI will continue with a 'neutral' monetary policy stance.

"The last mile of inflation is turning out to be prolonged and arduous," RBI Governor Das said.

The Reserve Bank raised the inflation projection for current fiscal year to 4.8 per cent from 4.5 per cent with Governor Shaktikanta Das saying lingering food price pressures are likely to keep headline inflation elevated in the December quarter.

Core inflation, though at subdued levels, also registered a pick-up in October. Fuel group remained in deflation for the 14th consecutive month in October.

RBI said CPI inflation for 2024-25 is projected at 4.8 per cent, with Q3 at 5.7 per cent; and Q4 at 4.5 per cent.

On the upside, Das said the evolving trajectory of domestic edible oil prices, following the hike in import duties and rise in their global prices, need to be closely monitored.

"The near-term inflation and growth outcomes in India have turned somewhat adverse since the October policy. The medium-term prognosis on inflation suggests further alignment with the target, while growth is expected to pick up its momentum," Das said.In the October policy, the central bank had estimated the inflation at 4.5 per cent for the fiscal ending March 2025.

"Going ahead, a good rabi season would be critical to the softening of the food inflation pressures. Early indications point to adequate soil moisture content and reservoir levels, conducive for rabi sowing," the Governor said.

CPI headline inflation increased from average 3.6 per cent during July-August to 5.5 per cent in September and further to 6.2 per cent in October 2024, which was the highest in more than a year, since September 2023.

Consumer price index (CPI)-based inflation increased sharply in September and October 2024 led by an unanticipated increase in food prices.Indicators suggesting slowdown in economy in Q2 has bottomed out, Das said, adding that the near-term inflation growth outlook has somewhat turned adverse since last monetary policy in October.

RBI also kept the benchmark interest rates unchanged for 11th time in a row at 6.5 per cent.

Das also announced that the Indian rupee has remained less volatile compared to its peers in emerging market economies.

In his statement, the governor announced that financial parameters of banks, NBFCs continue to be strong and health of financial sector is at its best.

The RBI also imposed business restrictions on regulated entities only in cases where sufficient corrective action is not visible, adding that the current account deficit will remain at a sustainable level in FY25.

Meanwhile, RBI raised the interest rate ceiling on NRI deposits with aim to strengthen the rupee.

RBI is also going to set up committee of experts to suggest framework for responsible, ethical use of AI.

The post policy conference is scheduled for 12 noon today.

Das is chairing the last MPC meeting of his current term which ends on December 10.

The MPC members are: Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi; Saugata Bhattacharya, Economist; Ram Singh, Director, Delhi School of Economics; Rajiv Ranjan, Executive Director, RBI; Michael Debabrata Patra, Deputy Governor, RBI; and Shaktikanta Das, Governor, RBI.

(With PTI inputs)