On December 6, 2024, the Reserve Bank of India (RBI) announced that it would maintain the benchmark policy rate at 6.5% for the eleventh consecutive time. The RBI also revised its GDP growth forecast for the current financial year down to 6.6%, a decrease from the previous estimate of 7.2%. This decision comes amid rising inflation concerns and a slowdown in economic growth, with Governor Shaktikanta Das emphasising the need for a cautious approach to monetary policy.
RBI’s Decision and Economic Outlook
During the Monetary Policy Committee (MPC) meeting held from December 4-6, the RBI’s decision to keep the interest rate unchanged was supported by a vote of 4-2. The Cash Reserve Ratio (CRR) was cut by 50 basis points to 4%, aimed at injecting ₹1.16 trillion into the banking system to enhance liquidity. Governor Das noted that while economic growth has slowed, recent data does not warrant drastic measures. The inflation forecast for FY25 has been adjusted upwards to 4.8%, reflecting ongoing pressures primarily from food prices.
Context of Economic Challenges
The RBI’s announcement follows a disappointing GDP growth rate of just 5.4% for the July-September quarter, marking a seven-quarter low. This decline has raised concerns about the overall health of the Indian economy, prompting discussions around potential policy adjustments. The RBI’s cautious stance reflects its dual mandate to ensure price stability while fostering economic growth. With inflation exceeding the RBI’s target range, particularly driven by food prices, the central bank is navigating a complex economic landscape.
Stakeholder Reactions
The decision has sparked varied reactions among economists and policymakers. Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal have advocated for reduced borrowing costs to stimulate economic activity. Some analysts suggest that maintaining the current rates could hinder growth further, while others believe it is necessary to combat inflation effectively. The financial markets have responded positively, with expectations that stable interest rates will encourage homebuyers and boost demand in the real estate sector.
The Logical Indian’s Perspective
The RBI’s commitment to maintaining stability in monetary policy amid these economic challenges underscores a prudent approach during uncertain times. While addressing inflation is critical, it is equally important to support sustainable growth and resilience in our economy. As citizens, how can we collectively foster an environment that promotes both stability and growth? We invite your thoughts and insights on this pressing issue as we navigate these challenges together.
