RBI MPC Meet Highlights: Unchanged repo rate, CRR cut, concerns about GDP and inflation; here are all the key announcements

The Reserve Bank of India (RBI) on Friday announced its latest monetary policy decisions. This followed a three-day meeting that began on December 4.

The Monetary Policy Committee (MPC) members include Shaktikanta Das, Governor of the Reserve Bank of India (RBI); Michael Debabrata Patra, Deputy Governor, RBI; Rajiv Ranjan, Executive Director, RBI; Ram Singh, Director, Delhi School of Economics; Saugata Bhattacharya, Economist; and Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development.

Here are the key highlights from the MPC meeting:

Monetary policy decisions

• The policy repo rate remains unchanged at 6.50% under the liquidity adjustment facility (LAF).
• The standing deposit facility (SDF) rate stays at 6.25%, and the marginal standing facility (MSF) rate and Bank Rate are steady at 6.75%.
• The MPC decided to maintain a neutral stance, aiming to keep inflation under control while promoting growth.
• The target is to achieve 4% CPI inflation (with a margin of ±2%) over the medium term, ensuring both price stability and economic growth.

Growth outlook

• The global economy is stable but growing slowly, with inflation decreasing, the RBI noted.
• Geopolitical risks and trade policy uncertainties are causing more volatility in global financial markets.
• In India, GDP growth in Q2 2024-25 was lower than expected at 5.4%, mainly due to reduced private consumption and investment, although government spending recovered.
• Services and agriculture sectors showed resilience, but weak industrial activity (manufacturing, electricity, mining) affected overall growth.
• Positive factors ahead include good kharif production, better rabi prospects, improving industrial activity, and strong services.
• Real GDP growth is projected at 6.6% for 2024-25, with Q3 at 6.8%, Q4 at 7.2%, and for H1 2025-26 at 6.9% (Q1) and 7.3% (Q2).

Inflation outlook

• CPI inflation rose to 6.2% in October, above the tolerance limit, due to higher food prices and rising core inflation.
• Food inflation is expected to ease in Q4, helped by seasonal vegetable price drops, kharif harvests, and good rabi conditions.
• Upside risks include adverse weather, rising global agricultural prices, and potential increases in energy costs.
• CPI inflation for 2024-25 is projected at 4.8%, with Q3 at 5.7%, Q4 at 4.5%, and for H1 2025-26 at 4.6% (Q1) and 4.0% (Q2).
• Risks to both growth and inflation are balanced.

RBI cuts CRR by 50 bps to 4%

• The MPC announced a 50 basis points reduction in the Cash Reserve Ratio (CRR), bringing it down to 4%.
• The CRR represents the portion of a bank's deposits that must be maintained as reserves with the RBI.

RBI to raise interest rate ceilings on FCNR-B deposits

• The RBI announced an increase in the interest rate ceilings on FCNR-B deposits, effective immediately.
• This move, accompanied by higher FCNR deposit rates, aims to boost foreign capital inflows into India.
• While Foreign Portfolio Investment (FPI) inflows to Emerging Market Economies (EMEs) generally declined in October, India has recorded net FPI inflows of $9.3 billion in FY25 so far.

Rationale for decisions

• Recent inflation and growth outcomes in India have become less favorable since October, the RBI stated.
• Economic activity is expected to improve, backed by better business and consumer sentiments reflected in RBI surveys.
• Inflation risks remain high due to overlapping shocks, geopolitical uncertainties, and market volatility.
• High inflation impacts consumer purchasing power, especially in rural and urban areas, and could hurt private consumption.
• Durable price stability is crucial for long-term high growth, prompting the MPC to keep the repo rate unchanged at 6.50%.
• The MPC maintained a neutral stance, allowing flexibility to address inflation and growth as needed.

Repo rate decision

• Voted to keep the repo rate unchanged: Shaktikanta Das, Saugata Bhattacharya, Rajiv Ranjan, Michael Debabrata Patra.
• Voted to reduce the rate by 25 basis points: Nagesh Kumar, Ram Singh.

Neutral stance decision

• Unanimous support from all members for continuing the neutral monetary policy stance.

Additional announcements

• Collateral-free loan for agriculture sector raised to Rs 2 lakh per borrower from Rs 1.6 lakh.
• Small finance banks permitted to extend pre-sanctioned credit lines through UPI.
• Mule-Hunter AI: RBI launched a tool named Mule-Hunter AI to detect and prevent mule accounts.
• RBI to launch podcasts for wider dissemination of information to general public.
• Next MPC Meeting: Scheduled from February 5 to 7, 2025.