The Reserve Bank of India (RBI) recently revealed its latest monetary policy after a three-day meeting of the Monetary Policy Committee (MPC). On October 9, RBI Governor Shaktikanta Das presented important updates on the economy and the central bank's approach to managing inflation and fostering growth.
Policy Decisions:
In its latest review, the RBI decided to keep the benchmark repo rate steady at 6.5%. This marks the tenth consecutive time the central bank has chosen to maintain this rate, stabilizing impact on the Indian stock market:. Additionally, the RBI shifted its policy stance to "neutral," moving away from the previous "withdrawal of accommodation" approach.
Other key interest rates remained unchanged:
Standing Deposit Facility (SDF) rate: 6.25%
Marginal Standing Facility (MSF) rate: 6.75%
Bank Rate: 6.75%
The MPC, which consists of six members, reached its decisions with a 4:2 majority.
Economic Growth Projections:
The unchanged repo rate indicates that borrowing costs will remain stable, supporting sectors such as banking, real estate, and infrastructure that benefit from lower interest rates. It remains a focal point, with the RBI maintaining its full-year GDP growth estimate at 7.2% for FY25. This is an encouraging sign, reflecting confidence in the country’s growth prospects despite global uncertainties.
However, quarterly adjustments were made:
Q2FY25: Slightly reduced to 7% (previously 7.2%)
Q3FY25: Raised to 7.4% (from 7.3%)
Q4FY25: Increased to 7.4% (from 7.2%)
Inflation Outlook:
On the inflation front, the central bank maintained its CPI inflation forecast at 4.5% for FY25. Managing inflation remains a core objective of the RBI’s policy, and the forecast reflects careful balancing between price stability and economic growth.
Quarterly inflation estimates were revised slightly:
Q2FY25: Reduced to 4.1% (previously 4.4%)
Q3FY25: Raised to 4.8% (from 4.7%)
Q4FY25: Reduced to 4.2% (from 4.3%)
Additional Initiatives:
Apart from the policy rates and economic projections, the RBI introduced several new measures aimed at promoting financial stability and inclusiveness:
Foreign Investments: A neutral policy stance could maintain India's appeal to foreign investors, who prefer a predictable monetary environment.
Responsible Lending Norms: Extended to include Micro and Small Enterprises (MSEs), ensuring fair lending practices.
Capital Raising for Urban Cooperative Banks: A discussion paper on avenues for primary (urban) cooperative banks to raise capital.
Climate Risk Information System: The creation of a system to track climate risks in the financial sector, reflecting the growing importance of sustainability.
Enhanced UPI Transaction Limits: Increased limits for UPI payments and wallets to facilitate more seamless digital transactions.
RTGS and NEFT Updates: Introduction of a beneficiary account name look-up facility to improve transaction accuracy in real-time gross settlement (RTGS) and national electronic funds transfer (NEFT) systems.
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