RBI Holds Repo Rate Steady at 6.5%; Key Highlights from the MPC Meeting - The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 6.5% during its bi-monthly meeting, which concluded on December 6. The decision was made with a 4-2 majority, maintaining the Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) rates at 6.25%.

Focus Shifts Amid Economic Slowdown
For the first time in over 30 months, the MPC’s focus shifted more toward slowing economic growth. The RBI has now kept the repo rate steady for 11 consecutive meetings, signaling caution amid high inflation driven by persistent food price pressures. Despite these challenges, the RBI expressed optimism regarding growth, aided by favorable monsoons and increased capital expenditure.

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In the previous meeting, the central bank transitioned from a "withdrawal of accommodation" stance to a "neutral" position, reflecting a shift in its policy approach.

GDP Growth and Inflation Projections
The RBI revised its GDP growth forecast for FY 2024-25 to 6.6%, down from earlier estimates. Growth is expected to be 6.8% in Q3, 7.2% in Q4, 6.9% in Q1FY26, and 7.3% in Q2FY26.

Inflation projections for FY 2024-25 were slightly lowered to 4.8%, with Q3 and Q4 inflation expected at 5.75% and 4.5%, respectively. For FY26, inflation is projected at 4.6% in Q1 and 4% in Q2.

CRR Reduced to Ease Liquidity
To address potential liquidity concerns, the RBI announced a 50-basis-point reduction in the Cash Reserve Ratio (CRR), bringing it down to 4%. This move aims to mitigate liquidity stress while balancing inflationary pressures and maintaining rupee stability.

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Economic Growth Outlook
The MPC highlighted that while domestic economic activity has slowed, recovery is underway, driven by festive season demand and a rebound in rural activity. The central bank remains cautious, balancing growth aspirations with inflation control.

Initiatives for Farmers
A significant relief measure was announced for small farmers, with the collateral-free agricultural loan limit raised from ₹1.6 lakh to ₹2 lakh per borrower. This increase, last revised in 2019, reflects rising agricultural input costs and inflation, offering greater credit access to marginal farmers.

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New Communication Channel
The RBI introduced podcasts as part of its communication strategy to enhance transparency and connect better with the public. This initiative aims to provide insights into monetary policies and other key developments.

Stock Market Response
Following the announcements, stock markets saw positive momentum, with bank and financial stocks leading the recovery.