RBI Monetary Policy: No Cut! Repo Rate Unchanged For 11th Time In Row, To 6.5%; What Does It Mean?

RBI Monetary Policy: Taking note of the recent slowdown in growth momentum, the Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 6.50%, for the eleventh time in a row on Friday, December 6, 2024. The decision received majority votes in a 4:2 ratio of six-members MPC with RBI governor Shaktikanta Das also voting to keep policy rates unchanged.

That being said, Dr Nagesh Kumar, Shri Saugata Bhattacharya, Professor Ram Singh, Dr Rajiv Ranjan, Dr Michael Debabrata Patra and Shri Shaktikanta Das voted to continue with a neutral stance on monetary policy and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.

Apart from the 6.5% repo rate, consequently, the standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

Also, MPC decided to continue with the neutral monetary policy stance and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.

RBI's policy decisions revolve around its objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%.

Arsh Mogre, Economist Institutional Equities, PL Capital - Prabhudas Lilladher said, "The RBI's December MPC decision reflects a delicate balancing act between addressing domestic liquidity challenges and managing external vulnerabilities. By maintaining the repo rate at 6.5% and implementing a 50 bps CRR cut to 4%, the central bank has infused ₹1.16 lakh crore into the banking system, directly targeting the acute liquidity deficit caused by rupee depreciation and capital outflows. This demonstrates a tactical response to near-term pressures without prematurely altering the broader monetary stance. The downward revision of FY25 GDP growth to 6.6% from 7.2% acknowledges the economy's structural slowdown, with Q2 growth at 5.4%. High-frequency data, including tepid credit growth and flat industrial output, underscore the challenges to domestic demand recovery. Yet, inflation remains a dual-edged sword."

Mogre added, "While the FY25 projection of 4.8% offers comfort, persistent food inflation and global shocks keep risks tilted to the upside. This policy signals the RBI's strategic intent: to alleviate liquidity constraints and stabilize financial conditions while keeping its options open for future rate actions. Governor Das's acknowledgement of the 'prolonged last mile of disinflation' underscores that policy normalization will be data-dependent and gradual. This policy balances the fine line between growth revival and inflation control. The policy moves are clear but cautious-indicating readiness for incremental easing from February 2025 provided inflationary pressures abate and external conditions stabilize. This measured approach underscores the RBI's focus on preserving economic stability while navigating an increasingly uncertain global landscape."

During the press conference, Das said, "As we stand at the threshold of 2025, let me reflect upon the eventful journey of 2024. In line with the trend in the last few years, central banks were once again put to the ultimate test to stabilise their economies against continuous, colossal and complex shocks. Central banks are constantly adapting to the new global economic and financial landscape created by geopolitical conflicts, geoeconomic fragmentation, financial market volatility and continuing uncertainties, all of which are testing the resilience of the global economy."

He added, "The last mile of disinflation is turning out to be prolonged and arduous, both for advanced and emerging market economies (EMEs). Maintaining macroeconomic and financial stability, and building buffers, continue to be the lodestar for the EMEs. "

For India, Das said, " notwithstanding the recent aberration in the growth and inflation trajectories, the economy continues its journey on a sustained and balanced path towards progress. Amidst the reshaping of the global economy, India is well-positioned to benefit from the emerging trends as it forges ahead on a transformative journey."

The minutes of the MPC's meeting will be published on December 20, 2024. The next meeting of the MPC is scheduled during February 5 to 7, 2025.