The RBI is currently facing a challenging balancing act. With new members joining the MPC and the US Federal Reserve easing its interest rates, the RBI needs to find a middle ground between supporting domestic growth and controlling inflation.
The central bank has already held rates steady for eight consecutive meetings since its last hike in February 2023, leaving the repo rate at 6.50%.
In its previous meeting in August 2024, the MPC maintained its stance of “withdrawal of accommodation” to tackle inflationary concerns. Four out of the six committee members voted to keep the rates unchanged. However, two members, Jayanth Varma and Ashima Goyal, broke ranks by calling for a 25-basis-point cut, citing the need for a shift to a neutral stance in light of the evolving global economic conditions.
Key decisions from the August MPC Meeting
Repo Rate: 6.50%
Standing Deposit Facility (SDF): 6.25%
Marginal Standing Facility (MSF) and Bank Rate: 6.75%
Stance: Withdrawal of accommodation
Growth projections for FY25
The RBI has kept its GDP growth forecast for FY25 steady at 7.2%. However, the forecast for the second quarter (Q2) of FY25 was slightly reduced from 7.3% to 7.2%, while the third-quarter (Q3) projection was maintained at 7.3%. Despite minor adjustments, the overall growth outlook remains optimistic.
Q1: 7.2% (from 7.3%)
Q2: 7.2%
Q3: 7.3%
Q4: 7.2%
What lies ahead?
While the RBI is expected to maintain its rates, the growing split within the MPC highlights the uncertainty surrounding India’s monetary policy. As inflation concerns persist and global conditions shift, the central bank’s path forward will require careful consideration to ensure that domestic growth does not falter while inflation remains under control.
With the MPC’s decision looming, all eyes are on how the RBI will navigate these complex challenges.