The Reserve Bank of India (RBI) led Monetary Policy Committee (MPC) on Wednesday retained repo rate, the key lending rate, at 6.5%, announced governor Shaktikanta Das.
The MPC also decided unanimously to change the ‘withdrawal of accommodation’ stance to ‘neutral’ to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth, said the governor.
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Consequently, the rate-setting panel also kept standing deposit facility (SDF) rate unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.
RBI MPC key takeaways
“These decisions are in consonance with the objective of achieving the medium term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” said Das, while explaining the rationale behind the stance change.
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Das further said “The monetary policy action today reflects MPCs assessment that at the current juncture it would be appropriate to have greater flexibility and optionality to act in sync with the evolving conditions and the outlook.”
RBI’s GDP, Inflation target
The MPC retained its real Gross Domestic Product (GDP) forecast at 7.2 per cent for FY25. With this, the RBI has now pegged growth rate for Q2 at 7% (reduced from 7.2%), Q3 at 7.4% (up from 7.3%%) and Q4 at 7.4%. For Q1 FY26, the growth rate was kept at 7.3%.
Meanwhile, the central bank left its inflation forecast for this fiscal year unchanged at 4.5%, even amid caution on food prices and intensifying geopolitical tensions that may disrupt energy supplies and take crude prices further higher.
“The MPC noted that the domestic growth outlook remains resilient supported by domestic drivers – private consumption and investment. This provides headroom for monetary policy to focus on the goal of attaining a durable alignment of inflation with the target,” said Das.
RBI decisions at a glance
“After a transient spike in the near term, headline inflation is expected to moderate as projected above. With better prospects for both kharif and rabi crops and ample buffer stocks of foodgrains, there is now greater confidence on the disinflation path later in the financial year,” he added.
India’s economic landscape has been characterised by strong growth in recent quarters. According to the State Bank of India (SBI), domestic conditions remain paramount in shaping the RBI’s monetary policy decisions. With India’s growth potentially higher than its long-term potential output, the report argues that maintaining the current interest rate levels is justified. “Domestic conditions are paramount, and with robust growth, higher than potential output, the case for a pause exists,” the report said.
The growth rate for the first quarter of FY2025 was 6.7%, slightly below the RBI’s projection of 7%. While still indicative of strong growth, this dip has raised concerns. Moreover, key indicators such as vehicle sales, cement volumes and GST collections have seen a drop, signalling a cooling of economic activity.
Deloitte India’s economist, Rumki Majumdar, stated that the RBI’s shift to the ‘neutral’ stance reflects that it is willing to increase the money supply to support the economic activities.
“As expected, policy rates have been kept unchanged as the last mile of inflation fight remains a challenge. High food prices have caused higher inflation in rural areas that impacts rural demand,” she added.
As per an poll of economists, 80% of respondents were anticipating the RBI to keep the repo rate unchanged, marking the tenth consecutive meeting with no rate cuts.
