Fri Dec 06 07:08:25 UTC 2024: ## RBI Holds Repo Rate Steady Amidst Slowing Growth and High Inflation

**Mumbai, India** – The Reserve Bank of India (RBI) concluded its Monetary Policy Committee (MPC) meeting today, announcing a decision to keep the repo rate unchanged at 6.5 percent for the eleventh consecutive time. This decision comes against a backdrop of high inflation and a significant slowdown in India’s economic growth, with the July-September GDP dropping to a seven-quarter low of 5.4 percent.

RBI Governor Shaktikanta Das cited the need to maintain a neutral stance while monitoring inflation and growth prospects. The GDP projection for the fiscal year 2024-25 was revised downwards to 6.6 percent from the previous estimate of 7.2 percent.

Despite maintaining the repo rate, the MPC implemented a 50 basis point reduction in the Cash Reserve Ratio (CRR) to 4 percent, injecting an estimated Rs 1.16 lakh crore (approximately $14 billion USD) of additional liquidity into the banking system. This move is intended to ease lending conditions and potentially lower deposit rates.

While the unchanged repo rate provides relief to borrowers by preventing further EMI increases, the CRR cut may only marginally reduce deposit rates. There are concerns that the full transmission of previous repo rate hikes hasn’t been reflected in all lending rates, particularly those linked to the marginal cost of funds-based lending rate (MCLR).

The 4-2 vote in favor of keeping the repo rate unchanged highlights divisions within the MPC regarding the appropriate monetary policy response to the current economic climate. Governor Das emphasized that durable price stability is crucial for sustained high growth, noting that food inflation is expected to persist in the third quarter of FY25 before easing in the fourth.

The CRR cut has been met with positive responses from the real estate sector, with several developers expecting increased lending capacity to boost activity. However, some analysts point out that a repo rate cut would have provided a stronger impetus to the struggling economy.

The RBI also announced several other measures, including the extension of UPI credit lines to small finance banks to improve financial inclusion, the establishment of a committee to develop an ethical framework for AI, and an increase in the interest rate ceiling on NRI deposits to support the rupee. The Governor highlighted that the Indian Rupee has remained relatively stable compared to its emerging market peers.

The RBI’s decision reflects a careful balancing act between managing inflation and stimulating economic growth in a challenging environment. The coming months will reveal the effectiveness of the chosen policy mix.

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