RBI Keeps Policy Rate Unchanged Signals Possible Cut with 'Neutral' Stance

The Reserve Bank of India (RBI) announced on Wednesday that it has kept its key interest rate unchanged but has adjusted its monetary policy stance to "neutral," paving the way for potential rate cuts. RBI Governor Shaktikanta Das stated, “Prevailing and expected inflation, and growth balance have created congenial conditions for a change in the monetary policy stance to ‘neutral’.”

Announcing the fourth bi-monthly monetary policy for the current financial year, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5 percent. Das said RBI will remain watchful of elevated food inflation even when India's GDP growth remains strong. This announcement follows the conclusion of a three-day meeting of the six-member Monetary Policy Committee (MPC), marking the first meeting since the appointment of three new external members by the government.

The RBI maintained its Gross Domestic Product (GDP) growth projection for FY25 at 7.2%, along with an inflation forecast of 4.5%. In his monetary policy statement, Governor Das outlined the GDP growth expectations, projecting 7.2% for the second quarter, 7.4% for both the third and fourth quarters, and 7.3% for the first quarter of FY26. The consumer price index (CPI) inflation forecast for FY25 also remains at 4.5%.

Governor Das noted that food inflation pressures may ease later in the fiscal year, although retail inflation in September is expected to rise significantly due to an unfavorable base effect and increasing food prices. The RBI is tasked with maintaining retail inflation at 4%, with a permissible deviation of 2% either way.

In addition to the interest rate announcement, the RBI revealed enhancements to the Unified Payments Interface (UPI) system. The per-transaction limit for UPI123Pay will be raised from Rs 5,000 to 10,000, while the UPI Lite wallet limit will increase from Rs 2,000 to 5,000, and the per-transaction limit will rise from Rs 500 to 1,000. Governor Das emphasized that UPI has transformed India’s financial landscape, promoting digital payments and inclusivity.

While acknowledging greater confidence that inflation is moderating, Das reiterated the RBI's awareness of significant risks. He explained that the decision to change the stance was influenced by a balanced outlook for growth and inflation and that the timing was appropriate given the current economic conditions. The MPC's adjustment in stance also reflects ongoing geopolitical factors and global growth challenges, underscoring the RBI's commitment to aligning with its inflation targets.