RBI keeps repo rate unchanged at 6.5%, cuts GDP growth projection to 6.6%

Following the Monetary Policy Committee’s (MPC) meeting, Reserve Bank of India Governor Shaktikanta Das on Friday announced that the repo rate would remain unchanged at 6.5 per cent.

Das also announced the lowering of GDP growth projection for financial year 2025 to 6.6 per cent from 7.2 per cent.

The lowering of the growth outlook came after India’s growth slowed to a nearly two-year low of 5.4 per cent in the July-September quarter from 6.7 per cent in the previous April-June quarter. For the August-November quarter, Das said the growth outlook has been lowered to 6.8 per cent from 7.4 per cent.

The repo rate, the rate at which the RBI lends to banks, has remained 6.5 per cent since February 2023.

Das further announced that the cash reserve ratio (CRR), the proportion of the bank’s deposit that the bank is required to keep with the RBI, has been cut to 4 per cent from 4.5 per cent.

In his capacity as the RBI Governor, Das heads the six-member MPC. Three members of MPC are from the RBI and three are nominated by the Union government.

The MPC uses repo rate and reverse repo rate, the interest rate at which the RBI borrows from banks, along with other tools such as CRR and statutory liquidity ratio (SLR), the proportion of deposits a bank is required to keep in liquid assets, to regulate the flow of liquidity in the economy.

The MPC is mandated with keeping the inflation in the range of 2-6 per cent.

In October, the last month for which inflation figures are available, India’s retail inflation rose to 6.21 per cent from 5.49 per cent the previous month to reach a 14-month high. The inflation breached the upper limit of the RBI’s range. The inflation was mainly because of higher food prices.

Das said that near-term inflation growth outlook has somewhat turned adverse since last MPC meeting in October.