The Reserve Bank of India’s (RBI) latest monetary policy, announced on October 9, 2024, kept the repo rate unchanged at 6.5% for the tenth consecutive time. This decision reflects the RBI’s cautious approach amid ongoing concerns about inflation and economic growth. The central bank has shifted its policy stance from “withdrawal of accommodation” to “neutral,” indicating a more balanced approach moving forward.
Key Highlights of the Latest RBI Policy:
- Repo Rate Unchanged at 6.5%: The Monetary Policy Committee (MPC) decided to maintain the status quo on the repo rate, which remains at 6.5%. The repo rate is the rate at which the RBI lends to commercial banks, and keeping it unchanged helps prevent any immediate impact on lending rates, ensuring that consumer and business loans remain stable.
- Focus on Inflation: The RBI is focused on achieving a durable alignment of inflation with its target of 4%, while allowing for a 2% deviation. Although inflation has been on a downward trajectory, its pace has been slow and uneven. Headline inflation remains a concern, primarily due to high food prices, but the RBI expects inflationary pressures to ease in the coming months.
- GDP Growth Outlook: The RBI has retained its GDP growth projection for FY2025 at 7.2%. This is a positive signal for the economy, reflecting the central bank’s confidence in India’s economic recovery. Growth is expected to remain strong, driven by robust domestic demand and improved industrial activity.
- Monetary Stance Change: One of the notable changes in this policy is the shift in the monetary stance from “withdrawal of accommodation” to “neutral.” This indicates that the RBI is no longer focusing on tightening liquidity conditions but is now more flexible, ensuring that inflation remains under control while also supporting economic growth.
- Marginal Standing Facility (MSF) and Standing Deposit Facility (SDF) Rates: The MSF rate and SDF rate have been kept unchanged at 6.75% and 6.25%, respectively. These rates are crucial for managing short-term liquidity in the banking system.
Impact on Borrowers and Consumers:
For borrowers, especially those with home loans and other loans linked to the repo rate, the unchanged repo rate comes as a relief. It ensures that their equated monthly installments (EMIs) will not increase for the time being. However, there is still some uncertainty regarding future rate cuts, as the RBI may consider rate reductions if inflation eases further.
Outlook:
The RBI’s neutral stance suggests that it will closely monitor inflation trends and economic growth before making any further changes to interest rates. Economists are divided on when the RBI might start cutting rates, with some predicting a rate-cutting cycle could begin by late 2024 or early 2025, depending on how inflation behaves in the coming months.
Overall, the RBI’s cautious approach reflects the need to balance inflation control with economic growth, as India continues to recover from global and domestic economic challenges.
This latest policy decision reinforces the RBI’s commitment to maintaining financial stability while ensuring sustainable economic growth.
