RBI Monetary Policy December 2024 Highlights: RBI Keeps Repo Rate Steady at 6.5%

The Reserve Bank of India (RBI) will announce its fifth monetary policy of FY25 today, December 6. The three-day meeting of the Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, concludes with the interest rate decision at 10:00 AM.

The central bank has kept the policy rate at 6.5 per cent for the past ten meetings. In the previous MPC meeting, 5 out of 6 members voted to maintain the rate, while all members agreed to adopt a neutral stance to balance inflation control with promoting economic growth.

Many analysts expect the six-member Monetary Policy Committee (MPC) to keep the key policy rate steady at 6.5 per cent for the eleventh consecutive meeting. However, some suggest that the slowing economy and moderating inflation could pave the way for future policy easing.

Gunjan Goel, Director, Goel Ganga Developments, suggests that the RBI faces a challenging decision in this MPC meeting. She says, "The RBI faces a tricky position in this MPC meeting. While core inflation has eased, rising food prices and geopolitical factors raise caution. Given Q2’s robust GDP growth of 7.6%, we expect the MPC to keep rates unchanged, possibly lowering the growth forecast, with the focus remaining on achieving the 4% inflation target without hindering growth."

The upcoming MPC decision is crucial for the real estate sector. LC Mittal, Director of Motia Builders Group, says, "The affordable housing space has been the most affected by high interest rates since 2022. Now, with the repo rate pegged at 6.5 per cent, this space is expected to witness a revival. The next MPC decision is very important. A rate cut would boost affordable housing demand, but even a status quo will support the positive trend in residential sales, which increased by 15 per cent over the previous year in 2023."

"Considering the global economic conditions and the state of inflation in the country, the RBI is likely to retain its hawkish stance while keeping the Indian rate unchanged. What investors should be really observing is the content of Governor Das's remarks with regard to liquidity management and growth forecasts. Since the GDP came out better than expected but the core sectors have returned mixed results, the central bank may have a more tempered view of growth for the economy for fiscal year 2025."

Manoj Goyal, Director of Forteasia Realty Pvt. Ltd., says, "The recovery of the commercial real estate sector largely depends on this MPC decision. While direct rate cuts seem unlikely, the RBI's outlook on growth and liquidity will be crucial in shaping corporate investment strategies and influencing credit availability, office space demand, and warehouse construction plans."

Ashish Agarwal, Co-Founder of Enzyme Office Spaces, says, "The MPC announcement comes at a key time for India’s construction and allied sectors, which contribute over 7 per cent to the country’s GDP. At this stage, policy certainty is more important than rate cuts. The priority should be ensuring continuous credit provision to developers, alongside controlling construction material prices."

RBI Governor Shaktikanta Das will announce the MPC's repo rate decision shortly. The outcome of this meeting will have significant implications for the economy.

RBI Governor Shaktikanta Das emphasized the central bank's commitment to its flexible inflation targeting approach. He highlighted the RBI’s mandate to maintain price stability while ensuring sustained economic growth.

RBI Governor Shaktikanta Das confirmed that the repo rate will remain at 6.5%, with a 4:2 vote in favor while the Marginal Standing Facility (MSF) and bank rate are at 6.75%. The central bank maintains a neutral stance, balancing inflation control with economic growth to ensure price stability while supporting the economy.

RBI Governor Shaktikanta Das highlighted that food inflation is expected to continue through Q3 but is likely to ease in Q4 of FY25. He noted that persistent inflation erodes consumers' disposable income, impacting spending and overall economic activity.

The RBI has projected India’s GDP growth for FY25 at 6.6 per cent, with a 6.8 per cent growth forecast for Q3 and 7.2 per cent for Q4.

The RBI has estimated inflation for FY25 at 4.8 per cent, with the third quarter projected at 5.7 per cent and the fourth quarter expected to drop to 4.5 per cent.

Shaktikanta Das, the RBI Governor, has announced a 50 basis points reduction in the Cash Reserve Ratio (CRR), bringing it to 4 per cent.

RBI Governor Shaktikanta Das stated that banks have been urged to take prompt action on unclaimed deposits in operative and frozen accounts due to pending KYC updates. He called for necessary steps to be taken urgently to reduce the number of such accounts and simplify the process for customers.

The RBI is set to introduce podcasts as a new communication channel, aiming to boost engagement and transparency in sharing policy updates and information.

RBI Governor Shaktikanta Das has announced the launch of MuleHunter.AI, developed to prevent digital frauds. Additionally, a committee will be formed under the name FREEAI to recommend a framework for the responsible and ethical enablement of AI in the financial services sector.

The RBI has authorized Small Finance Banks (SFBs) to offer credit lines on UPI, expanding access to financial services alongside Scheduled Commercial Banks (SCBs).

The RBI has announced an increase in the collateral limit for agricultural loans, raising it from Rs 1.6 lakh crore to Rs 2 lakh crore per borrower. This move is intended to provide enhanced financial support to farmers and boost credit availability in the agricultural sector.

The RBI has proposed linking the FX-Retail platform with NPCI’s Bharat Connect platform, allowing users to transact via mobile apps from banks and payment service providers.

The RBI has increased interest rate ceilings on FCNR-B deposits to attract more foreign capital. This move comes after a decline in FPI inflows to emerging markets, with India recording $9.3 billion in net FPI inflows in FY25 so far.

Indian equity indices, BSE Sensex and Nifty 50, saw slight gains following the Reserve Bank of India’s decision to keep the repo rate unchanged at 6.5% and reduce the cash reserve ratio (CRR) to 4%.

Abbhinav R Jain, Co-founder and CFO of AdCounty Media, said, "Recent measures by the RBI highlight the synergy between innovation and economic growth. The CRR cut and the establishment of a committee on AI ethics will enable MSMEs to access technology and automation while easing liquidity constraints. This long-term strategy not only enhances financial risk management but also facilitates the adoption of evolving technologies, positioning India's MSME sector to thrive without heavy capital requirements."

Anurag Goel, Director of Goel Ganga Developments, emphasized the positive impact of the stable repo rate on homebuyers. He stated, "The reef of repo rate remaining unchanged presents homebuyers with a positive advantage. This is due to the stabilization of current home loan rates at approximately 8.5-9%, making EMIs more bearable for the average buyer. Research indicates that this stabilization has increased the pool of potential homebuyers by about 15% in tier-2 cities, which will encourage real estate development in the country."

Sandeep Mangla, Managing Director, Forteasia Realty Pvt. Ltd., emphasized, "Today's decision to leave the repo rate unchanged clearly indicates the RBI's intention to foster balanced growth. This decision has a beneficial effect on developers as it ensures fixed borrowing costs, leading to improved project execution. The decline in unsold stock has steadily decreased by 18% on a yearly basis, as markets settle. This type of rate stability is precisely what the sector requires in order to sustain its rate of growth."

Aman Gupta, Director, RPS Group, said, "We can see how consistently responsive and focused the RBI’s persistent approach in maintaining the repo rate has been for the real estate ecosystem. With home loan rates expected to remain constant, I believe there is more positive confidence in the market. Our research shows that constant rates have already increased housing inquiries by 12% this quarter. The importance of stability cannot be overstated, especially in mid-segment housing, which will significantly determine consumer purchase decisions."

LC Mittal, Director of Motia Builders Group, highlighted the importance of the RBI's policy decision, stating, "At a pivotal time, this policy choice helps maintain stability in the market. Given the importance of real estate in contributing up to 7% of India's GDP, stability in the rates assures growth in allied industries as well. Our study finds that stable financing costs have led to a 25% rise in new project launches across primary metros, benefiting sectors such as steel, cement, furniture, and home goods."

Ashish Agarwal, Co-Founder, Enzyme Office Spaces, said, "The repo rates being maintained points to the RBI's subtle appreciation of the peculiarities and sensibilities of the real estate market. With construction costs plateauing and interest rates remaining stable, developers are now in a position to focus on project execution rather than exploring finance restructuring. We’re now seeing statistics that demonstrate a significant improvement in project completion time, with a 22% rise in delivery rates from the previous year.

Bhavik Thakkar, CEO of Abans Investment Managers, stated, "While the RBI's decision to maintain the repo rate and cut the CRR by 50 basis points was anticipated, the move to raise the ceiling for FCNR (B) deposits by 150 bps signals a strategic focus on strengthening the dollar against the rupee. Recent dollar appreciation has pressured the rupee, prompting RBI interventions that deplete forex reserves. By offering higher interest rates on foreign currency deposits, the RBI is preparing for sustained actions from the U.S. that could further bolster the dollar."

Governor Shaktikanta Das stated, "SFBs leverage a high-tech, low-cost model to reach the last mile customer and can play an enabling role in expanding credit access via UPI. We propose to allow SFBs to extend pre-sanctioned credit lines through UPI, with guidelines to be issued soon." For more, read UPI Credit Line in Small Finance Banks.

The Reserve Bank of India (RBI) has unveiled ‘FREEAI: Framework for Responsible and Ethical Enablement of AI’ to address the growing influence of Artificial Intelligence in the financial sector. As part of this initiative, the RBI will establish a specialized committee to provide recommendations on tackling the challenges associated with AI integration. Read more: RBI's Big Announcement On Artificial Intelligence For Financial Sector; Check Details

Governor Shaktikanta Das highlighted that inflation for September and October exceeded expectations during the latest RBI policy meeting. This higher-than-expected inflation is shaping the central bank’s approach as it works to maintain price stability while addressing economic growth challenges.

1. Repo Rate Unchanged at 6.5 per cent: The Reserve Bank of India keeps the repo rate steady, maintaining its stance on inflation control amid economic challenges.

2. GDP Growth Projection for FY25 Revised: The RBI lowers India's GDP growth forecast for FY25 to 6.6 per cent, down from the previous 7.2 per cent.

3. Inflation Forecast for FY25: The RBI projects inflation for FY25 at 4.8 per cent, with a target to bring it within range in the coming quarters.

4. UPI Credit Line Available for Small Finance Banks: The RBI announces that Small Finance Banks (SFBs) can now offer pre-sanctioned credit lines through UPI.

5. CRR Cut by 50bps to 4 per cent: The RBI reduces the Cash Reserve Ratio (CRR) by 50 basis points to 4 per cent, releasing Rs 1 lakh crore into the banking system to enhance liquidity.