RBI December monetary policy decision: Repo rate remains steady for eleventh time; 'neutral' stance continues

RBI December 2024 monetary policy outcome: Taking in view the domestic macros, RBI's monetary policy committee has decided by a majority of 4:2 to pause key policy rate for the eleventh straight time today. Last, a change in the keep policy or repo rate was made in February 2023 when the rates were revised higher by 25 bps to 6.5 per cent and since then have remained in place.

Repo rate is the rate at which RBI lends funds to commercial banks in the country. Further, it serves as the key tool for managing inflation.

So, the repo rate continues at 6.5 per cent, while the SDF rate remains at 6.25 per cent and the MSF rate at 6.75 per cent. Furthermore, the MPC unanimously agreed to maintain this neutral policy stance, signaling a cautious approach to current economic conditions.

'Neutral' stance is taken on to when the RBI has to tackle both inflation as well as weak economic growth and both of the factors are given equal priority. allowing for adjustments in either direction depending on the macros.

Starting his speech, the RBI's Das said the monetary policy is important for all and the RBI is expected to maintain price stability while maintaining growth. Last mile of disinflation turning out to be prolonged and arduous for economies, said Das.

The six-member monetary policy committee (MPC) voted in favour of a status-quo even as few of the economists expected a 25 bps in view of the recent GDP print.

Even as the RBI’s growth/inflation forecast will see significant downward/upward revisions, an immediate rate cut may not be easy for the MPC to justify, especially as their commentary has been assertive on durable disinflation being the primary mandate, added Emkay Global's RBI preview note.

Growth outlook

The real GDP growth for FY25 is now projected at 6.6 per cent. For Q3, the growth rate is expected to be 6.8 per cent, while Q4 is anticipated to rise to 7.2 per cent. Looking ahead to Q1 FY26, the real GDP growth is forecasted at 6.9 per cent, with an increase to 7.3 per cent in Q2 FY26.

Inflation outlook

Inflation for FY25 is projected at 4.8 per cent. For Q3, it is expected to rise to 5.7 per cent, but is anticipated to decline to 4.5 per cent in Q4. For Q1 FY26, inflation is forecasted at 4.6 per cent, with a further dip to 4 per cent in Q2 FY26.