RBI Policy Outcome: Shaktikanta Das Keeps FY25 GDP Forecast At 7.2%; What Will Drive Economy Ahead?

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has upheld its projection of 7.2% GDP growth for the financial year 2024-25 (FY25) in its latest bi-monthly policy decision announced on October 9. Despite a slight moderation in growth expectations for the second quarter, the RBI has raised its projections for the remaining quarters of FY25, as well as the first quarter of FY26.

During the October meeting, RBI Governor Shaktikanta Das confirmed that the real GDP growth rate for FY25 remains projected at 7.2%, signalling steady economic expansion despite global uncertainties. However, the growth forecast for the second quarter (Q2 FY25) was revised down to 7% from the earlier estimate of 7.2%. In contrast, growth expectations for the third and fourth quarters (Q3 and Q4 FY25) were slightly raised to 7.4%, up from the earlier forecast of 7.3%. The first quarter of the next financial year (Q1 FY26) is now projected to witness a growth of 7.3%, marginally higher than the earlier estimate of 7.2%.

In line with expectations, the RBI's MPC has decided to keep the key policy repo rate-the rate at which the RBI lends to commercial banks-unchanged at 6.5%. This marks the tenth consecutive time that the repo rate has been held steady, as the central bank continues to prioritize price stability while nurturing economic growth.

A significant development from this meeting, however, was the shift in the RBI's policy stance from 'withdrawal of accommodation' to a more neutral position. This shift was unanimously approved by the MPC, reflecting the committee's recognition of the need for flexibility in the current economic environment. The 'neutral' stance gives the RBI the leeway to adjust its monetary policy based on evolving economic conditions, whereas the 'withdrawal of accommodation' stance was aimed at gradually tightening monetary policy to control inflation.

In addition to its growth projections, the RBI maintained its inflation forecast for FY25 at 4.5%, underscoring the central bank's confidence in its ability to manage inflationary pressures. This projection takes into account global uncertainties, domestic food price volatility, and potential commodity price shocks, especially in the wake of geopolitical tensions.