RBI Keeps Repo Rate Steady at 6.50%, Shifts Policy Stance to Neutral

The Reserve Bank of India (RBI) has decided to keep the repo rate at 6.50%. RBI Governor Shaktikanta Das stated that the standing deposit facility rate will also stay at 6.25%. He announced a shift in the bank’s policy to a neutral stance.

Das emphasized that the standing deposit facility rate remains unchanged at 6.25%. He mentioned that while a decrease in headline inflation is expected, there might be a rise in September, and inflation is likely to stay high in the near term.

RBI: Five out of six members of the Monetary Policy Committee (MPC) agreed on the repo rate decision. However, MPC member Nagesh Kumar voted to lower the policy repo rate by 25 basis points.

After the RBI announced its neutral policy, the forward premiums for the Indian rupee dropped. The forward premium for the rupee in September 2025 fell from 1.8350 to 1.7950 rupees following this change.

The RBI Governor noted that manufacturing is showing signs of slowing down. He also pointed out that core inflation seems to have hit its lowest level.

The forward premiums for the rupee decreased after the RBI shifted to a neutral stance. The RBI Governor stated that the focus will be on keeping inflation at the target rate of 4%. He also noted that strong economic growth allows for a focus on controlling inflation.

The RBI Governor observed that private consumption and investment are both increasing. He mentioned that private investment is gaining momentum and urban demand remains stable.

He indicated that investment activities are strong and that rural demand is on the rise. The RBI Chief stated that manufacturing activity is improving due to better domestic demand.

The RBI Governor highlighted that key economic indicators show steady domestic activity. He also reported that the investment share of GDP is at its highest since 2012-13.

Following the RBI’s policy change, the yield on 10-year Indian government bonds decreased by 7 basis points to 6.74%. Das expects Consumer Price Index (CPI) inflation to be 4.1% in the second quarter and 4.8% in the third quarter of FY25.

The RBI Governor warned that worsening geopolitical situations could increase inflation risks. He also mentioned that overall inflation is likely to gradually decrease in the fourth quarter.

He projected that CPI for September will show a significant rise due to base effects. Additionally, he expects real GDP growth of 7% in the second quarter and 7.4% in the third quarter of FY25.

The RBI Governor pointed out that services exports are positively contributing to economic growth. He noted that progress is being made towards lasting disinflation.

He also mentioned that the changing domestic price situation suggests overall inflation will moderate in the future. Easing food inflation is expected but may be affected by weather-related issues.

Core inflation is anticipated to remain mostly under control. The current balance between existing and expected inflation growth has created favorable conditions for a policy shift.

However, unexpected weather events and geopolitical issues still pose risks to inflation. The Governor stated that managing the final stages of disinflation is challenging, and significant inflation risks remain.

He cautioned that while inflation is being controlled, care is needed to prevent it from rising again. Monitoring the evolving conditions for disinflation is crucial.

The potential negative effects of inflation risks should not be overlooked. The RBI will stay flexible and responsive in managing liquidity needs, both temporary and long-term.

The transmission of policy rates to the credit market is functioning well. The RBI aims to manage liquidity effectively.

The lower volatility in the rupee reflects strong macroeconomic fundamentals. The financial health of banks and non-banking financial companies is still robust, but some unsecured loan segments are facing increased stress.

The RBI is closely watching this situation and will take necessary actions regarding unsecured lending.

The RBI chief stated that the banking and non-banking financial company (NBFC) sectors are healthy and resilient. However, some non-bank lenders are chasing excessively high returns on equity, which raises concerns. There is a need for continued attention to inactive deposit accounts, as well as issues related to cybersecurity and fraudulent accounts.

Some NBFCs are focusing on growth but are neglecting proper risk management standards. Additionally, certain non-banks are aggressively pursuing growth, including microfinance institutions and housing finance companies, which could lead to high costs and debt. This poses risks to financial stability, making it crucial for non-banks to adopt sustainable business practices.

The RBI emphasized that it will take necessary actions against non-banks when required, especially concerning the very high interest rates charged by some NBFCs. It is also important for NBFCs to review their compensation and bonus practices and ensure they follow sustainable goals and implement appropriate risk management strategies.

On a positive note, India’s external sector remains resilient. The RBI plans to announce measures related to responsible lending, which will include imposing foreclosure charges and prepayment penalties on loans. Additionally, a discussion paper on capital-raising avenues for urban cooperative banks will be released, and there will be an enhancement of certain limits for UPI transactions.

The RBI Governor emphasized the need for flexibility in policy due to the current economic climate, assuring that the Reserve Bank is being vigilant amid rapidly changing global conditions. He announced plans to raise limits for specific UPI transactions and introduced a discussion paper focused on capital raising for primary urban cooperative banks. Additionally, he proposed eliminating pre-payment fees for microfinance loans.

Furthermore, the Governor highlighted a significant increase in global investor optimism regarding India’s future prospects. He noted that international investors have never been more positive about the country’s potential, reflecting confidence in its economic growth and stability.

RBI Governor Shaktikanta Das announced new measures to promote digital payments through the Unified Payments Interface (UPI). In the Monetary Policy Committee meeting, he revealed that the maximum amount for UPI 123Pay transactions will go up from ₹5,000 to ₹10,000, and the limit for UPI Lite wallets will increase from ₹2,000 to ₹5,000.

These changes are part of the RBI’s plan to make UPI more accessible to everyone, especially in areas with limited internet access. UPI 123Pay allows users to make digital payments even without an internet connection.

RBI Chief Shaktikanta Das mentioned that the Monetary Policy Committee’s (MPC) decisions will be guided by the dynamics of growth and inflation. The policy rate will be determined based on the overall outlook for inflation and growth.

He highlighted that while inflation will remain elevated in the near term, it is expected to moderate in the future. For October, inflation is predicted to stay around 5%.

Das also expressed greater confidence that inflation is beginning to ease, but he would like to manage the near-term inflation spike before considering any further policy moves.

RBI Deputy Governor Michael Patra added that the central bank will wait until foreign ownership of government bonds reaches significant levels before taking a view on the matter.
According to BOFA, the Reserve Bank of India is likely to implement a 25 basis points rate cut in December 2024. Despite weak economic data, the bank is expected to maintain its growth forecast. However, near-term inflation risks remain elevated due to weather-related disruptions.

According to BOFA, the Reserve Bank of India is likely to implement a 25 basis points rate cut in December 2024. Despite weak economic data, the bank is expected to maintain its growth forecast. However, near-term inflation risks remain elevated due to weather-related disruptions.