RBI MPC meeting: Key takeaways on GDP growth, inflation, and interest rate

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, concluded its meeting with key decisions on inflation, growth, and interest rates. In its October meeting, the MPC decided to keep interest rates unchanged and shifted its policy stance from "withdrawal of accommodation" to "neutral."

The committee had detailed discussions on inflation trends and the state of the economy before reaching this decision. With new external members onboard, the MPC's goal is to balance price stability with supporting economic growth.

Key interest rates remain the same

The MPC has kept key interest rates unchanged. The repo rate stays at 6.50%, the Standing Deposit Facility (SDF) is at 6.25%, and the Marginal Standing Facility (MSF) rate remains at 6.75%. These rates have now remained steady for ten consecutive meetings, with the last hike occurring in February 2023.

The central bank stated that these decisions are aimed at achieving the medium-term inflation target of 4%, within a tolerance band of +/- 2%, while also fostering economic growth.

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said, “RBI’s decision to hold rates while changing the stance to neutral is completely in line with our expectations. The tone of the Governor remains fairly balanced keeping further decisions data dependent. We continue to expect the onset of rate easing from December with a 25bps cut but the scale of easing in this cycle is expected to be shallow with limited scope for back to back easing in each policy.”

Key rates at a glance:

• Repo Rate: 6.50%
• Standing Deposit Facility (SDF): 6.25%
• Marginal Standing Facility (MSF): 6.75%
• Policy stance: Neutral

GDP growth projections

The RBI maintained its GDP growth forecast for the financial year 2024-25 (FY25) at 7.2%. The economy showed resilience in the first quarter of FY25, with a growth of 6.7%, driven by strong private consumption and investment.

Governor Das highlighted that the outlook for growth remains positive, with good rainfall, steady manufacturing, and a strong services sector. The ongoing festival season, coupled with healthy kharif sowing, is expected to boost private consumption. Bank credit growth, higher capacity utilisation, and government infrastructure projects are further supporting economic activity.

The RBI shared steady growth projections for the coming quarters. In Q2 FY25, GDP growth is estimated at 7%, rising to 7.4% in Q3 and Q4, and slightly reducing to 7.3% in the first quarter of FY26.

GDP growth projections:

• Q2 FY25: 7%
• Q3 FY25: 7.4%
• Q4 FY25: 7.4%
• Q1 FY26: 7.3%

Inflation outlook

Headline inflation had dropped to 3.6% in July and 3.7% in August, after being at 5.1% in June. However, inflation is expected to rise in September due to higher food prices and base effects. The MPC expects food inflation to ease by Q4 FY25, helped by good crop arrivals and a strong rabi season.

Rising prices of commodities, especially crude oil and metals, were noted as key risks. Despite this, inflation for FY25 is projected to remain at 4.5%, with inflation risks viewed as balanced.

Inflation projections:

• Q2 FY25: 4.1%
• Q3 FY25: 4.8%
• Q4 FY25: 4.2%
• Q1 FY26: 4.3%

The MPC's decision to maintain the current interest rates and shift to a neutral stance is based on the current balance of inflation and growth. The committee noted that India’s growth outlook is strong, driven by private consumption, investments, and healthy bank credit.

However, the MPC remains cautious due to factors such as rising commodity prices, geopolitical tensions, and weather uncertainties. The shift to a neutral stance gives the RBI flexibility to monitor inflation trends while continuing to support economic growth.

The RBI stressed that price stability is key to ensuring sustained long-term growth, and while inflation may rise in the short term, the committee expects it to moderate in the coming months, thanks to favourable crop conditions and adequate foodgrain stocks.

MPC voting results

The decision to maintain the repo rate at 6.50% was supported by five out of six members. Dr. Nagesh Kumar was the only member who voted for a 25 basis point reduction in the rate. All members, however, agreed on changing the policy stance to neutral.

• Five members voted to keep the repo rate unchanged at 6.50%.
• One member voted for a rate cut of 25 basis points.
• All members voted to shift the stance to neutral.

The next two RBI MPC meetings for the current fiscal year are scheduled for December 4-6, 2024, and February 5-7, 2025.