RBI MPC Policy Highlights: Repo Rate Stable, GDP & Inflation Estimates Revised; Check Key Announcements

In its latest Monetary Policy Committee (MPC) meeting on Friday, December 6, the Reserve Bank of India (RBI) maintained a status quo on the repo rate and policy stance, citing concerns over sticky inflation and its broader implications on economic growth and consumers. RBI Governor Shaktikanta Das announced that the benchmark repo rate would remain unchanged at 6.5% for the eleventh consecutive meeting, with the monetary policy stance retained as 'neutral'. The decision was supported by a 4:2 majority within the MPC.

Here are the key takeaways from the December MPC meeting:

1. Repo Rate Unchanged

The central bank reaffirmed its decision to keep the benchmark repo rate at 6.5%. This marks the eleventh straight meeting of no change in the rate.

2. GDP Growth Estimates Revised Downward

Economic growth projections for FY25 were trimmed to 6.6% from an earlier forecast of 7.2%. The revision follows weaker-than-expected GDP growth of 5.4% in Q2FY25, the slowest pace in seven quarters.

Quarterly GDP growth forecasts were also lowered:
Q3FY25: Revised to 6.8% from 7.4%.
Q4FY25: Revised to 7.2% from 7.4%.
Q1FY26: Revised to 6.9% from 7.3%.
The central bank anticipates GDP growth to recover to 7.3% by Q2FY26.

3. Inflation Projections Revised Upward

The RBI revised its FY25 Consumer Price Inflation (CPI) forecast to 4.8%, up from the previous estimate of 4.5%, citing persistent food price pressures.

Updated quarterly projections:
Q3FY25: Inflation is now estimated at 5.7%, up from 4.8%.
Q4FY25: Revised to 4.5% from 4.2%.
Q1FY26: Adjusted to 4.6% from 4.3%.
Q2FY26: Expected to hit the RBI's target of 4%.

Governor Das noted that while near-term inflation remains elevated due to food prices, a seasonal correction in vegetable prices during winter could bring relief.

4. Cash Reserve Ratio (CRR) Cut

The RBI announced a 50-basis-point reduction in the CRR, lowering it to 4%. This measure is expected to infuse Rs 1.16 lakh crore into the banking system, easing liquidity constraints and supporting credit availability.

5. Interest Rate Ceilings on FCNR-B Deposits Increased

To attract foreign investments, the RBI raised interest rate ceilings on FCNR-B deposits and other foreign currency deposits.

6. New Benchmark Rate Introduced

A new secured overnight rupee rate will be implemented based on secured money market transactions such as repo and TREPS, ensuring better rate transparency.

7. Agriculture Loans

The limit for collateral-free loans in the agriculture sector was increased from Rs 1.6 lakh to Rs 2 lakh per borrower.

8. AI Framework Committee

The RBI will form a committee of experts to establish guidelines for the ethical and responsible use of artificial intelligence in the financial sector.

Additional Observations

Governor Das highlighted that the financial health of Indian banks and NBFCs is robust, with the financial sector in its strongest position in years.
The Indian Rupee has shown resilience and remained less volatile compared to other emerging market currencies.
The RBI expects the current account deficit for FY25 to stay within sustainable levels, supported by India's strong financial fundamentals.