RBI Keeps Repo Rate Unchanged At 6.5%

The Reserve Bank of India (RBI) has decided to maintain its key policy repo rate at 6.50% for the 11th consecutive time, as announced after the Monetary Policy Committee (MPC) meeting held from December 4-6, 2024. The decision was taken by a 4-2 majority, citing persistently high inflation and the need to balance growth and price stability.

RBI Governor Shaktikanta Das highlighted that India's real GDP growth for the second quarter of FY2024-25 slowed significantly to 5.4%, compared to 7.4% in the first quarter. This decline was driven by sluggish manufacturing performance, contraction in mining activity, and reduced electricity demand. The downturn in manufacturing was, however, sector-specific, affecting areas like petroleum products, iron and steel, and cement.

"Growth in real GDP in Q2 at 5.4 per cent turned out to be much lower than anticipated.5 This decline in growth was led mainly by a substantial deceleration in industrial growth from 7.4 per cent in Q1 to 2.1 per cent in Q2 due to subdued performance of manufacturing companies,6 contraction in mining activity and lower electricity demand.7 The weakness in the manufacturing sector, however, was not broad-based but was limited to specific sectors such as petroleum products, iron and steel and cement," the central bank said in its press release," the press release from the RBI said.

Despite the slowdown, Governor Das expressed optimism, stating that economic activity has shown signs of recovery since the second quarter. "High-frequency indicators suggest the slowdown bottomed out in Q2. Festive demand, robust rural activity, healthy Kharif crop production, and higher reservoir levels have contributed to the rebound," he said, adding that industrial activity is expected to recover as well.

While keeping the repo rate unchanged, the RBI maintained a neutral monetary policy stance, reaffirming its commitment to aligning inflation with its target while supporting sustainable economic growth.