Highlights of the Monetary Policy Meeting - December 2024

HIGHLIGHTS OF MONETARY POLICY COMMITTEE MEETING – DEC 2024

POLICY REPO RATE –

The Monetary Policy Committee (MPC) by a 4 to 2 majority vote  decided to keep toe repo rate unchanged at 6.5%. The two dissenting external members had voted in favor of a 25-bps rate cut.

GDP GROWTH ESTIMATES –

Following a sharp deceleration in the GDP growth to 5.4% in Q2FY25, the MPC effected a downward revision in the growth estimates. (Table 1)

                             Table 1      (Source MOSPI)                         *Actual

The decline in the Q2FY25 numbers has been mainly due to weakness in the industrial sector as reflected in the weak corporate profitability

RBI noted that growth has bottomed out in Q2FY25 and going forward, expects growth momentum to gather pace, backed by good kharif crop production and pick-up in economic activity driven by festive and rural demand.

INFLATION –

CPI inflation is a source of worry and remains consistently above the 4% threshold

RBI noted that while core inflation is within manageable limits, food inflation, contributed by surge in vegetable, pulses, cereals and edible oil prices, pose an upside risk in softening of food inflation.

RBI has effected an upward revision of the annual inflation forecast for FY25 (Table 2) and expect the inflation to moderate to the targeted 4% by Q2FY26.

                             Table 2     ( Source MOSPI)                         *Actual

CASH RESERVE RATIO -

The CRR has been cut by 50 basis points to 4% thus providing the banks additional funds to support credit growth and economic activity.

The CRR cut is expected to result in additional funds of Rs 1.6 lakh crore in the banking system.

AGRICULTURAL LOANS -

The limit for collateral free agricultural loans is to be raised to Rs 2 lakh per borrower from the existing limit of Rs 1.6 lakh.

Dateline – 07/12/2024