The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) has decided to maintain the repo rate at 6.5%, opting not to adjust rates in the wake of the recent 50 basis point rate cut by the U.S. Federal Reserve. RBI has also shifted its stance from ‘withdrawal of accommodation’ to a ‘neutral’ approach, indicating a more balanced outlook going forward.
RBI Governor Shaktikanta Das highlighted that the global economy remains stable despite geopolitical uncertainties. In India, real GDP growth reached 6.7% in Q1 FY2024-25, largely driven by private consumption and investment. The Governor also emphasized that the agricultural sector is expected to perform well, benefiting from above-average rainfall and robust reservoir levels, while manufacturing and services sectors remain steady.
On the demand side, he noted that strong kharif sowing and the upcoming festive season should boost private consumption. Investment prospects are also supported by non-food credit growth, improved corporate balance sheets, and continued government infrastructure spending.
Inflation and Current Account Deficit Outlook
Governor Das noted that headline inflation fell to 3.6% and 3.7% in July and August, but September could see a rise due to adverse base effects and higher food prices. He projects food inflation to ease by Q4 FY2024-25, with favorable kharif crop yields and a promising outlook for the rabi season. Meanwhile, the current account deficit widened to 1.1% of GDP in Q1, though strong service exports and FDI flows should keep it manageable.
Focus on NBFCs and Lending Practices
The RBI is closely monitoring credit card usage, microfinance loans, and unsecured lending. Governor Das raised concerns over some Non-Banking Financial Companies (NBFCs) that are rapidly expanding without robust underwriting practices. He stressed the need for NBFCs to self-correct, although RBI remains vigilant and may intervene if necessary. The central bank also highlighted the need for banks and NBFCs to address cybersecurity risks and monitor inoperative and mule accounts closely.
Future Prospects
Looking ahead, Das expects external demand to strengthen alongside global trade volumes. He reaffirmed RBI’s commitment to ensuring financial stability, noting that non-resident deposits have seen a rise compared to last year, despite a slowdown in external commercial borrowings.
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With these developments, the RBI’s ‘neutral’ stance allows for flexibility in responding to future economic challenges while supporting growth and financial stability.
Look at industry leaders’ POV:
Anitha Rangan, Economist, Equirus says, RBI’s 10th Policy – Warming up towards accommodation with a “tight leash on the horse”
“As a first step towards getting closer to rate accommodation, RBI changes its stance to “neutral” from withdrawal of accommodation. The policy is however unchanged at 6.5%. Nevertheless, the vote was 5-1 for keeping policy unchanged. RBI noted that current and estimated dynamics of growth-inflation balance is driving the change in stance. Within this RBI’s growth and inflation target for FY25 is unchanged at 7.2% and 4.5%.
However we would think that next move is unlikely to be a rate cut, at this juncture, RBI will only keep its options open towards accommodation. The hawkish points emanate from the points around a) Inflation is on a declining path although there is some distance to cover with upside risks from geo-politics and weather while the agricultural outlook is buoyant and positive for food prices. b) RBI keeps its guard on noting that “we have to be very careful of opening the gate and need to keep the horse to a tight leash” and mentioning that RBI cannot be complacent with the rapidly evolving global conditions. The change in stance rather gives greater flexibility and optionality to act in sync with the evolving outlook.
The signal that RBI is warming up or getting more comfortable towards accommodation is the point around transmission to credit markets being satisfactory. However, at the juncture of elevated global volatility perhaps RBI does not believe it to be opportune to cut rates. They will await more certainty from external side (US elections, Middle East tensions), before taking their first step which is not likely before March of 2025. Why disturb the horse which is well tethered?”
Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE, stated that, “The RBI’s decision to hold the repo rate steady reflects a balanced approach between achieving economic growth and managing inflation levels. As we approach the festive season, the decision is likely to support the sector’s ongoing momentum. The strong performance in the first half of 2024 across most real estate segments, coupled with a seasonal peak in activity, indicates that the real estate sector is well-positioned for continued growth during this period.”
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Dr. Poonam Tandon, Chief Investment Officer at IndiaFirst Life Insurance , said, “The Monetary Policy Committee has finally changed the stance of the Monetary Policy to “neutral” from withdrawal of accommodation” with all members voting for it. This has been expected by the markets for a very long time. The Governor has however cautioned that there may not be a rate cut in the following policy. It just increases the flexibility of the MPC to cut the rates and also monitor the situation both national (inflation and growth) and international (geopolitical tensions, US elections and Federal Reserve decisions). The Governor has also kept the growth rate intact at 7.2% for FY25 and the inflation target at 4.5%. The 10 yr G-sec yields have softened by 7bps to 6.74% on this news. On the whole the Policy was a very balanced one and one can expect a rate cut in the near future.”
Murthy Nagarajan, Head-Fixed Income, Tata Asset Management said, “RBI monetary committee unanimously changed its stance to neutral from withdrawal of accommodation. It maintained policy rates unchanged with five members in agreement and with one dissent voting for a 25 basis point rate cut. As per RBI MPC, better prospects for both rabi and kharif crops and ample buffer stock of foodgrains, gives greater confidence of achieving its 4% CPI inflation target. There is risk to this forecast due to heightened global geopolitical risks, financial market volatility, adverse weather events and recent uptick in global food and metal prices, which has led to policy repo rate remaining unchanged at 6.50%.
RBI has kept the growth forecast unchanged at 7.2%. CPI inflation forecast is at 4.5% for current year. Next year inflation for first quarter has been changed from 4.4% to 4.3%. Indian GDP is showing signs of slowdown, reflected in discounts offered in four-wheeler sales, slowdown in GST Collections. With Global geopolitical disruption , there could be a growth slowdown in the coming months. This should become clear during the next policy statement in December 6, 2024. There is a good probability of a rate cut in the next monetary policy.
Indian inclusion in Russell global emerging market index and further inclusion of Indian in other indexes are positive for the bond market. We should see government bond yields moving down in the coming months due to these developments.”
Rahul Bhuskute, CIO, Bharti AXA Life Insurance mentioned that, “The decision of RBI to keep policy repo rate unchanged while changing stance to neutral was a surprise to some of the market participants, and as such the bond yields are lower by around 5 bps post the announcement. But in our understanding, this was the most logical step, with domestic growth conditions also slowing down a bit and inflation being well under control. However, given the geopolitical uncertainties, we believe RBI would want to be data dependent going forward and hence the ‘neutral’ stance. We also see a good chance that both RBI’s growth projection of 7.2% and CPI projection of 4.5% will undershoot in this financial year and hence rate cuts are likely to come by starting December. Also, another positive development for the Indian bond market which materialized today was the FTSE global EM index inclusion with estimates of $4-5bn inflows starting Sep-2025.”
George Alexander Muthoot, MD, Muthoot Finance stated, “We commend the RBI’s prudent decision to maintain policy rates at 6.5% while adopting a neutral stance, providing essential flexibility to address inflationary pressures without hampering growth. This balanced approach allows the financial sector to respond effectively to evolving economic conditions. Despite global challenges, the Indian economy has demonstrated remarkable resilience, and it’s encouraging to see a revival in investment activities. Additionally, rural demand is on the rise, driven by favorable agricultural activities, which fuels our optimism for sustained growth. As we approach the festive and wedding season, we anticipate further uptick in both urban and rural demand, creating a positive environment for gold loans.
We are pleased to see the RBI Monetary Policy Committee’s confidence in the strong health parameters of the Indian financial ecosystem, including banks and NBFCs. As a responsible gold-loan NBFC, we recognize the importance of maintaining this stability and are committed to safeguarding customer interests. The RBI’s emphasis on customer protection and compliance aligns well with our commitment to responsible credit lending practices. Muthoot Finance remains dedicated to maintaining a robust risk management framework and enhancing operational resilience to navigate complexities.
We also welcome the RBI’s continued efforts to strengthen the digital arm of the financial ecosystem, particularly through the enhancement of UPI transaction limit. This initiative further reinforces India’s position as a leader in digital payments, encouraging wider adoption of UPI, and fostering greater financial inclusion. In alignment to offer more convenience to our customers and target the digital-savvy audience, Muthoot Finance had recently partnered with Google Pay to revolutionize gold loans.”
Venkatraman Venkateswaran – Group President & CFO, Federal Bank, mentioned that, “RBI maintained the Repo rate at same levels and changed the stance to Neutral, which was largely in line with consensus. The balance between growth and inflation is well poised and was the cue for stance change. RBI maintained the GDP growth at 7.2% and reiterated the focus to tame inflation, largely Food inflation. Few measures to further ease impact on customers was announced re: foreclosure charges and increase in per transaction limit for UPI / UPI Lite wallet is a welcome move.
Barring any major upheaval in geo-politics and other external factors, we may see the first action on Repo rate in Dec MPC meeting. Near term data points will form the basis for rate cut.”
Vijay Kuppa – CEO, InCred Money, said, “The Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6.5%, a decision aligned with expectations. The RBI’s focus remains clear—steering the economy toward a durable alignment of inflation with its target amidst geopolitical tensions and stabilizing domestic inflationary pressures. Given the current macroeconomic environment, further rate cuts in the upcoming quarters seem unlikely.
Despite global economic uncertainties, India stands in a relatively stronger position, with real GDP growth for 2024-25 projected at a robust 7.2%. The RBI’s decision signals flexibility, which is crucial as global commodity prices, including crude oil and metals, witness volatility. This balanced approach ensures sustained economic growth without the risk of overheating.
With deposit rates at elevated levels, this presents an ideal opportunity for locking in high-yield fixed deposits. At the same time, high borrowing costs make a compelling case for increasing debt allocations in investment portfolios, offering a buffer against potential equity market corrections which might occur due to geopolitical tensions.”
Vikas Garg, Head of Fixed Income, Invesco Mutual Fund, said, “One of the trickiest policies amidst the global rate cut cycle, slowing down global & domestic growth, moderating inflation but elevating geopolitical risks & food inflation. MPC finds a fine balance with the status quo on rates but changes the stance to ‘Neutral’. Despite the recent moderation, FY25 growth–inflation projections retained at 7.2% / 4.5% reflecting a caution on inflation. Strong commentary on healthy external factors provides comfort on resilience against global spill overs from Middle East tensions. Overall, a sentiment-boosting policy with a high likelihood of commencement of rate cut cycle over the next few months, though data dependent. Recently hardened yields provided an opportunity to add duration as already favourable demand-supply dynamics get supplemented by increased expectations on the rate cut cycle.”
Sandeep Yadav, Head – Fixed Income, DSP Mutual Fund, stated, “We expected the stance to changed in this MPC, so we are not surprised. Global yields and central banks will continue to weigh on RBI, especially since our macro parameters are somewhere in the middle and do not merit immediate action.
We believe rate cuts would occur soon, but will not hazard guess a timeline. If US data weakens, and central banks across world continue the rate cut trajectory then RBI has no reason not to cut rates.”
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