The Reserve Bank of India’s Monetary Policy Committee (MPC) met on December 6 to assess the current macroeconomic landscape and make key policy decisions. The meeting comes amidst global economic uncertainties, domestic inflationary pressures, and growth challenges, highlighting the MPC’s commitment to maintaining economic stability while supporting growth.
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Monetary Policy Statement, 2024-25
Resolution of the Monetary Policy Committee
December 4 to 6, 2024
Monetary Policy Decisions
After assessing the current and evolving macroeconomic situation, the
Monetary Policy Committee (MPC) at its meeting today (December 6, 2024) decided to:
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- Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%.
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Consequently, the standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.
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- The MPC also decided to continue with the neutral monetary policy stance and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.
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These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.
Growth and Inflation Outlook
2. The global economy remains stable with growth holding up amidst waning inflation, albeit at a slow pace. Geopolitical risks and policy uncertainty, especially with respect to trade policies, have imparted heightened volatility to global financial markets.
3. On the domestic front, real gross domestic product (GDP) registered a lower than expected growth of 5.4% in Q2:2024-25 as private consumption and investment decelerated even while government spending recovered from a contraction in the previous quarter. On the supply side, the growth in gross value added (GVA) during Q2 was aided by resilient services and improving agriculture sector, but weakness in industrial activity – manufacturing, electricity and mining – tempered overall growth. Looking ahead, robust kharif food grain production and good rabi prospects, coupled with an expected pickup in industrial activity and sustained buoyancy in services augur well for private consumption. Investment activity is expected to pick up. Resilient world trade prospects should provide support to external demand and exports. Headwinds from geo-political uncertainties, volatility in international commodity prices, and geo-economic fragmentation continue to pose risks to the outlook. Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 6.6% with Q3 at 6.8%; and Q4 at 7.2%. Real GDP growth for Q1:2025-26 is projected at 6.9%; and Q2 at 7.3%. The risks are evenly balanced.
propelled by a sharp pick-up in food inflation and an uptick in core (CPI excluding food and fuel) inflation. Going forward, food inflation is likely to soften in Q4 with seasonal easing of vegetables prices and kharif harvest arrivals; and good soil moisture conditions along with comfortable reservoir levels auguring well for rabi production. Adverse weather events and rise in international agricultural commodity prices, however, pose upside risks to food inflation. Even though energy prices have softened in the recent past, its sustenance needs to be monitored. Businesses expect pressures from input costs to remain elevated and growth in selling prices to accelerate from Q4.1 Taking all these factors into consideration, CPI inflation for 2024-25 is projected at 4.8% with Q3 at 5.7%; and Q4 at 4.5%. CPI inflation for Q1:2025 26 is projected at 4.6%; and Q2 at 4.05%. The risks are evenly balanced.
Rationale for Monetary Policy Decisions
6. Shri Saugata Bhattacharya, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50% Dr. Nagesh Kumar and Professor Ram Singh voted to reduce the policy repo rate by 25 basis points.
8. The minutes of the MPC’s meeting will be published on December 20, 2024.
9. The next meeting of the MPC is scheduled during February 5 to 7, 2025.
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