The Reserve Bank of India (RBI) has decided to keep the key repo rate unchanged at 6.5%, signaling its cautious stance in the face of persistent inflationary pressures. This marks the 11th consecutive time that the central bank has opted to maintain the rate at this level. The decision comes amid concerns over high inflation and a significant slowdown in the country’s economic growth.
RBI Governor Shaktikanta Das, while announcing the monetary policy committee’s (MPC) decision, acknowledged the ongoing challenges posed by inflation but emphasized that the central bank’s focus remains on containing price pressures while supporting economic growth. The repo rate, which is the rate at which the RBI lends money to commercial banks, has been held steady since February 2023, as inflation has remained above the RBI’s target range.
In addition to the repo rate decision, Das also unveiled a downward revision in the country’s GDP growth forecast for the fiscal year 2024-25. The RBI has slashed the growth projection to 6.6% from the earlier estimate of 7.2%, reflecting the ongoing economic challenges. The downgrade in the GDP forecast comes after the country’s GDP growth slowed to a seven-quarter low of 5.4% in the July-September quarter. This sharp deceleration in growth has raised concerns about the sustainability of the country’s economic recovery, particularly as inflation remains elevated.
In a bid to inject more liquidity into the banking system, the RBI also reduced the Cash Reserve Ratio (CRR) to 4% from 4.5%. The CRR is the portion of a bank’s total deposits that it is required to hold with the RBI. This reduction will release approximately Rs 1.16 crore of liquidity into the banking system, which is expected to support lending and ease credit conditions for businesses and consumers alike.
The RBI’s actions reflect its balancing act between addressing inflationary pressures and ensuring that the economy does not lose momentum. The central bank has been carefully monitoring the evolving macroeconomic landscape, and despite the challenges, it remains committed to fostering conditions that support sustainable economic growth. The upcoming months will be crucial in determining the effectiveness of these measures, especially as global and domestic factors continue to influence India’s economic trajectory.
