RBI Monetary Policy Highlights: Shift to ‘Neutral’ Stance Signals Potential Rate Cuts

Introduction

The Reserve Bank of India (RBI) announced its fourth bi-monthly monetary policy for FY25 on October 9, 2024. After a three-day meeting, RBI Governor Shaktikanta Das revealed that the Monetary Policy Committee (MPC) voted to keep the repo rate unchanged at 6.5% for the tenth consecutive meeting. However, the significant change was the shift in policy stance from ‘withdrawal of accommodation’ to ‘neutral,’ indicating the possibility of rate cuts in the near future if inflation remains stable.

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Key Policy Measures

• Repo Rate: 6.5% (unchanged)
• Standing Deposit Facility (SDF): 6.25%
• Marginal Standing Facility (MSF) and Bank Rate: 6.75%
• Policy Stance: Changed to ‘neutral’ from ‘withdrawal of accommodation’

The decision to maintain rates reflects caution, while the neutral stance signals flexibility for future monetary easing.

Growth and Inflation Projections

• GDP Growth: FY25 forecast retained at 7.2%, indicating confidence in the economy despite global uncertainties.
  • Q2 FY25: Revised down to 7%
  • Q3 & Q4 FY25: Raised to 7.4%
• CPI Inflation: FY25 forecast kept at 4.5%, signaling stable inflation expectations.
  • Q2 FY25: Lowered to 4.1%
  • Q3 FY25: Slightly increased to 4.8%
  • Q4 FY25: Cut to 4.2%

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Additional Announcements

• Responsible Lending: Extended norms for Micro and Small Enterprises (MSEs).
• UPI Enhancements: Increased transaction limits and introduced a new beneficiary name look-up for RTGS/NEFT.
• Climate Risk Information System: Launched to address sustainability risks.

Outlook

The shift to a neutral stance paves the way for potential rate cuts, contingent on inflation remaining under control. The next MPC meeting in December 2024 will be closely watched for further developments, with the RBI likely to adjust its stance based on economic and inflationary trends.

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