RBI Shifts Policy Stance to ‘Neutral’ in October Meeting; Hints at Potential Rate Cuts
The Reserve Bank of India (RBI) unveiled its fourth bi-monthly monetary policy for FY25, following a three-day meeting of the six-member Monetary Policy Committee (MPC). The RBI announced that the benchmark repo rate will remain unchanged at 6.5% for the tenth consecutive meeting. However, the significant shift in policy came as the RBI changed its stance from ‘withdrawal of accommodation’ to a ‘neutral’ position, signalling a potential openness to rate cuts in the future.
The policy announcement also retained the GDP growth estimate for FY25 at 7.2% and the CPI inflation forecast at 4.5%, maintaining a stable outlook for the economy. These developments offer insights into the central bank’s cautious but flexible approach toward economic conditions in the coming months.
Key Highlights from the RBI Monetary Policy Meeting
1. Policy Measures
- The repo rate is unchanged at 6.5%.
- RBI took the policy tone from the “withdrawal of accommodation” to a neutral one.
- SDF was kept at 6.25%, and MSF rate along with the Bank Rate remained at 6.75% as well.
- Major votes through the majority of 4:2 for keeping status quo were observed by the MPC.
2. GDP Growth Estimates
FY25 GDP growth was estimated at 7.2%. The quarterly projections were tweaked as follows:
- Q2FY25: A half percentage point was shaved off from 7.2% to 7%.
- Q3FY25: The projection was increased to 7.4% from 7.3%.
- Q4FY25: The forecast was edged up to 7.4% from 7.2%.
- Q1FY26: The GDP growth was estimated at 7.3%, up from 7.2%.
3. CPI Inflation Forecast
FY25 inflation stands at 4.5% with quarter-by-quarter revisions:
- Q2FY25: Reduced to 4.1% from 4.4%.
- Q3FY25: Increased to 4.8% from 4.7%.
- Q4FY25: The inflation for Q4FY25 was revised downward to 4.2% from 4.3%.
- Q1FY26’s inflation forecast has been reduced to 4.3% from 4.4%.
4. Add-ons
Widening the ambit of Responsible Lending Conduct norms to cover MSEs. A discussion paper on avenues of raising capital for Primary (Urban) Cooperative Banks would be proposed. Development of the Reserve Bank Climate Risk Information System would be initiated with a view toward assessing and addressing climate-related risks in financial services.
It will be accompanied by a rise in the transaction limits and wallet limits in UPI. The facility of beneficiary account name look-up for RTGS and NEFT will also become possible.
Future Expectations
The minutes of the recently released MPC meeting, provide more insight into the decisions made by the committee. There is the next MPC meeting scheduled to be from December 4 to 6, 2024, wherein a continuation discussion of a monetary policy framework and current economic conditions will be made.
The move to a ‘neutral’ stance is a development that sees prospects for future rate cuts depending on how inflation trends and other global economic events will evolve. This change represents more flexibility in the central bank’s positions as they adapt to the changing economic scenario in India.
