RBI MPC Meeting Oct 2024: The Reserve Bank of India’s 51st monetary policy meeting led by Governor Shaktikanta Das kept rates unchanged. Governor Das said flexible inflation targeting framework has helped bring about price stability globally . The RBI has changed its stance to Neutral and the focus remains unambiguously on INFLATION.
The MPC changed its stance in sync with the Geopolitical conditions and the global growth challenges. Keeping in view the prevailing inflation and growth condition, the RBI remains unambiguously focused on inflation and the alignment to the MPC targets. Earlier this month, the Centre had appointed three new members to the RBI’s monetary policy panel.
Anil Gupta, Senior Vice President, Co Group Head – Financial Sector Ratings, ICRA, said, “MSEs typically take unsecured business loans, which are normally on a fixed rate, as well as loan against property, which is on floating rate. While positive for customers, the RBI‘s move will have a negative impact on the profitability of lenders, and could also potentially increase the loan prepayments and balance transfer.”
Deepak Ramaraju, Senior Fund Manager, Shriram AMC, said, “Growth has been resilient and given the short-term pressure on inflation, RBI may continue to hold interest rates unchanged in Q3 FY2025 and based on inflation moderating below 4.5% and moderation of geo-political concerns, the RBI may undertake a rate cut decision in Q4 FY2025.
The bond and equity markets are expected to react positively in the medium term. Though short-term biases of FII may continue towards Chinese markets keeping pressure on the equity markets, the resilient domestic flows can defy deep corrections in the equity markets despite high valuations. The markets may trend positive with subsequent rate cuts by the US Fed. However, stock-specific corrections can be expected based on the earnings performance. Overall, in the short term, one can expect a buy-on-dip approach with a neutral stance by RBI.”
Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS, said, “The status quo on rates along with the regulator changing its stance to ‘Neutral’ from withdrawal of accommodation earlier was on expected lines. The RBI has maintained its growth and inflation estimates with minor tweaks. We believe a potential rate cut could be expected in Feb’25. Given the increasing anticipation of a rate cut in the upcoming meetings, margin pressures could act as a dampener for bank’s RoAs.
From a banking sector perspective, the upcoming Q2 results should replicate banks’ Q1 performance in terms of margins which are expected to moderate marginally. In contrast to Q1 performance, banks have seen an improvement in deposit growth on a sequential basis as per the provisional updates provided by banks, although the pace of credit growth has slowed down as banks look to align their credit and deposit growth.
We believe some banks could see a downward revision in their credit growth estimates for FY25 driven by their attempt to maintain a balanced LDR, slower corporate growth pick-up and moderating credit in the unsecured segments.”
“Predictability in RBI’s MPC decision of keeping our repo rate unchanged for the 10th consecutive time may be more from a position of maintaining status quo and not moving any factors given that our macros of growth and inflation are very well under control. This decision to wait and watch after the Fed cutting rates may also be because of the escalation in geo-political issues and increase in the US bond yields. Therefore, going forward too, there could be a divergence in stance to other economies, if the geopolitical issues escalate further or there is a change in stance from other economies.”
Madhavi Arora, Lead Economist, Emkay Global Financial Services, said, “The policy decision this time around wasn’t easy, and was indeed tricky for the RBI to find a balance in its policy biases with so many moving pieces. The MPC had a lot to process on domestic and external front:
(i) Incipient weakness in growth indicators,
(ii) Demand-led core disinflationary impulse despite noisy food dynamics, but a still-elusive 4% inflation target;
(iii) Comfortable banking liquidity, easy financial conditions on net;
(iv) The fluidity of global narratives with global fears of re-ignition of ‘high for long’ scenario, amidst Fed’s massive 50bp cut in Sep;
(v) Geo-political stress and upcoming US election event risk which could materially disturb Asian FX dynamics, amid ratcheting up of US-China trade war.
Thus, no rate action, in conjunction with stance change to neutral with stress on being ‘actively disinflationary’ is indeed their best bet to prep ground for start of a shallow easing cycle, possibly but not necessarily from December.”
Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “The RBI Governor exuded optimism about the Indian macros when he said, “the Indian economy presents a picture of stability and strength”. The Governor’s comment that “the inflation horse has been brought back to the stable” reflects the MPC’s confidence in reining-in inflation. This confidence has enabled the MPC to change the stance to neutral which may result in a rate cut by 25 bp in December. This is positive for the equity markets, particularly for the banking stocks.”
Gaura Sen Gupta, Chief Economist, IDFC FIRST Bank Economics Research, said, “We maintain our call for a shallow RBI rate cut cycle starting from December 2024. This is provided food inflation pressures ease in the coming months as supplies improve.”
She added that the policy space to remain on pause and assess the durability of the disinflation process is provided by growth conditions holding-up. “Compared to RBI, we remain more conservative on growth (FY25 GDP growth between 6.5% to 7%) with some signs of moderation visible. High frequency indicators for Q2FY25, for consumption are mixed for both urban and rural demand,” Gaura Sen Gupta said.
Maintain expectation of a shallow RBI rate cut cycle of 50 bps by February 2025 (25 bps cut in December and 25 bps cut in February).
Arsh Mogre, Economist – Institutional Equities, PL Capital – Prabhudas Lilladher, said, “The RBI’s Monetary Policy Committee held the repo rate steady at 6.5% for the tenth consecutive meeting, reflecting a cautious, data-driven approach amidst a global easing trend. Shifting to a ‘neutral’ stance indicates flexibility but not readiness for immediate easing. Governor Das’s firm message is clear: any rate cut will be contingent on achieving a durable alignment of inflation to the 4% target—a critical threshold that remains elusive amid persistent food price volatility and global uncertainties. The RBI’s inflation forecast for FY25 was kept at 4.5%, but the upward revision in Q3 to 4.8% signals rising caution over the impact of erratic monsoon patterns and geopolitical tensions.”
“This ‘neutral’ stance is not a precursor to rate cuts but a strategic recalibration which is “a calculated wait-and-see approach”, allowing the central bank to act swiftly if inflationary or growth dynamics shift sharply. Future cuts will likely be shallow (50-75 bps in FY25, starting from the Dec-24 meeting if growth indicators continue to show weakness), reinforcing that every policy decision remains ‘live’ and meticulously data-driven. The RBI’s stance is a clear signal: stability over stimulus, ensuring inflation is durably anchored before committing to a looser policy,” he added.
Deepak Shenoy, Founder & CEO, Capitalmind, said, “RBI decided to keep the policy rate unchanged on the back of potentially higher inflation going forward due to a base effect from last year, higher food prices worldwide, and geopolitical conflicts. However they have changed their stance to “neutral” from the earlier one of withdrawal from accommodation, which bodes well for future rate cuts. While the 10 year bond has reacted by the yield falling by 7bps to 6.74%, the extent of the damage due to the base effect and near term food price rises will determine the future course of action. The actions in the middle east may also create imbalances that will drive rate changes by the RBI. However, growth projections remain strong at over 7% for FY 2025, and with surplus liquidity, there seems to be very few areas of stress. The policy has also improved RTGS/NEFT transfers by allowing banks to show the name of an account holder before a transfer is done, just like in UPI. This will reduce the stress in larger volume transfers.”
RBI Governor Shaktikanta Das concluded, “Today, the Indian economy presents a picture of stability and strength. The balance between inflation and growth is well-poised. India’s growth story remains intact. Inflation is on a declining path, although we still have a distance to cover. The external sector demonstrates the strength of the economy. Forex reserves are scaling new peaks. Fiscal consolidation is underway. The financial sector remains sound and resilient. Global investor optimism in India’s prospects is perhaps at its highest ever. We are, however, not complacent, especially amidst rapidly evolving global conditions.”
UPI has transformed India’s financial landscape by making digital payments accessible and inclusive through continuous innovation and adaptation. To further encourage wider adoption of UPI and make it more inclusive, Shaktikanta Das said that it has been decided to (i) enhance the per-transaction limit in UPI123Pay from Rs 5,000 to Rs 10,000; and (ii) increase the UPI Lite wallet limit from Rs 2,000 to Rs 5,000 and per-transaction limit from Rs 500 to Rs 1,000.
The Reserve Bank has taken several measures over the years to safeguard consumer’s interest. As part of these measures, Shaktikanta Das announced that banks and NBFCs are not permitted to levy foreclosure charges/ prepayment penalties on any floating rate term loan sanctioned to individual borrowers for purposes other than business. “It is now proposed to broaden the scope of these guidelines to include loans to Micro and Small Enterprises (MSEs),” he said.
While Shaktikanta Das maintained that NBFCs have registered an impressive growth over the last few years, he listed out a few pointers to the outliers:
RBI Governor Shaktikanta Das said, “The health parameters of banks and NBFCs continue to be strong. There has been some recent commentary on the likelihood of stress buildup in a few unsecured loan segments like loans for consumption purposes, microfinance loans and credit card outstandings. The Reserve Bank is closely monitoring the incoming information and will take measures, as may be considered necessary.”
Banks and NBFCs, on their part, he added, need to carefully assess their individual exposures in these areas, both in terms of size and quality. Governor Das said that their underwriting standards and post-sanction monitoring have to be robust and continued attention also needs to be given to potential risks from inoperative deposit accounts, cybersecurity landscape, mule accounts, etc.
RBI Governor Shaktikanta Das said, “It is with a lot of effort that the inflation horse has been brought to the stable, i.e., closer to the target within the tolerance band compared to its heightened levels two years ago. We have to be very careful about opening the gate as the horse may simply bolt again. We must keep the horse under a tight leash, so that we do not lose control. Going forward, we need to closely monitor the evolving conditions for further confirmation of the disinflationary impulses.”
Shaktikanta Das said, “Government expenditure of the centre and the states is expected to pick up pace in line with the Budget Estimates. Investment activity would benefit from consumer and business optimism, government’s continued thrust on capex and healthy balance sheets of banks and corporates.”
Global crude oil prices have exhibited some moderation, with Brent crude falling from a high of $93 per barrel in mid-April 2024 to $73 per barrel by end-September. “Global growth recovery, continuation of geo-political tensions and nonreversal of production cut by OPEC plus may put upward pressure on crude oil prices. In this scenario, assuming crude oil price to be 10 per cent above the baseline and full pass-through to domestic product prices, domestic inflation could be higher by 30 bps and growth weaker by around 15 bps, respectively. Conversely, early resolution of geopolitical tensions, weak global demand, higher production from non OPEC economies along with unwinding of production cuts by OPEC plus may soften crude oil prices,” the RBI MPC report stated.
Shaktikanta Das said that the domestic economic activity remains resilient. “Improved performance of industrial sector, upturn in investment activity, above normal monsoon, pick up in rural demand, high capacity utilisation, healthy balance sheets of banks and corporates, and the government’s continued thrust on infrastructure spending augur well for the growth outlook, he said, while maintaining that uncertain global economic outlook, lingering geopolitical conflicts, rising supply chain pressures, and volatile global financial conditions, however, weigh heavily on the outlook to the downside.
Among the six-member committee, Saugata Bhattacharya, Professor Ram Singh, Dr Rajiv Ranjan, Dr Michael Debabrata Patra and Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50 per cent. Meanwhile, Dr Nagesh Kumar voted to reduce the policy repo rate by 25 basis points.
In terms of stance, Dr Nagesh Kumar, Saugata Bhattacharya, Professor Ram Singh, Dr Rajiv Ranjan, Dr Michael Debabrata Patra and Shaktikanta Das voted for a change in stance from ‘withdrawal of accommodation’ to ‘neutral’ and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.
The RBI governor said that the MPC noted that the domestic growth outlook remains resilient supported by domestic drivers – private consumption and investment, which provides headroom for monetary policy to focus on the goal of attaining a durable alignment of inflation with the target.
“The MPC reiterates that enduring price stability strengthens the foundations of a sustained period of high growth. After a transient spike in the near term, headline inflation is expected to moderate. With better prospects for both kharif and rabi crops and ample buffer stocks of foodgrains, there is now greater confidence on the disinflation path later in the financial year. Keeping in view the prevailing and expected inflation-growth dynamics, which are well balanced, the MPC decided to change the monetary policy stance from withdrawal of accommodation to ‘neutral’ and remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth,” he said while delivering his speech post the three-day MPC meeting.
While maintaining that risks stem from uncertainties relating to heightened global geo-political risks, financial market volatility, adverse weather events and the recent uptick in global food and metal prices, Shaktikanta Das said that the MPC has to remain vigilant of the evolving inflation outlook. “Accordingly, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting,” he said.
The RBI governor said that while the firms polled in the Reserve Bank enterprise surveys expect input cost pressures to ease, however, the very recent upturn in key commodity prices, especially metals and crude oil needs to be closely monitored.
In his speech, RBI Governor Shaktikanta Das said that headline inflation declined sharply to 3.6 and 3.7 per cent in July and August respectively from 5.1 per cent in June. “Going forward, the September inflation print may see a significant pick-up as base effects turn adverse and food prices register an upturn. Food inflation, however, is expected to ease by Q4FY25 on better kharif arrivals and rising prospects of a good rabi season. Sowing of key kharif crops are higher than last year and the long-period average. Sufficient buffer stocks for cereals are available for ensuring food security. Adequate reservoir levels, the likelihood of a good winter and favorable soil moisture conditions augur well for the ensuing rabi season, though adverse weather events remain a risk,” he said.
RBI Governor Shaktikanta Das said, “In India, real GDP registered a growth of 6.7 per cent in Q1FY25, driven by private consumption and investment. Looking ahead, the agriculture sector is expected to perform well on the back of above normal rainfall and robust reservoir levels, while manufacturing and services activities remain steady.”
On the demand side, he added, healthy kharif sowing, coupled with sustained momentum in consumer spending in the festival season, augur well for private consumption. Further, he also said that the consumer and business confidence have improved. “The investment outlook is supported by resilient non-food bank credit growth, elevated capacity utilisation, healthy balance sheets of banks and corporates, and the government’s continued thrust on infrastructure spending. External demand is expected to get support from improving global trade volumes,” Shaktikanta Das said.
Shaktikanta Das said, “The global economy has remained resilient since the last meeting of the MPC, although downside risks from increasingly intense geopolitical conflicts, geoeconomic fragmentation, financial market volatility and elevated public debt continue to play out. Manufacturing is showing signs of slowdown, while services activity is holding up. World trade is exhibiting improvement. Inflation is softening, supported by lower energy prices. Growing divergence in inflation-growth dynamics across countries has resulted in varying monetary policy responses.”
Shaktikanta Das announced that India‘s current account deficit (CAD) widened to 1.1 per cent of GDP in the first quarter. However, buoyancy in services exports and strong receipts are anticipated to keep the CAD manageable, he added. The RBI governor noted that foreign direct investment (FDI) flows remain robust in the current financial year. “While external commercial borrowings have moderated, non-resident deposits have seen higher net inflows compared to the previous year,” he said.
Shaktikanta Das said that India’s forex reserves have crossed a new milestone of $700 billion.
Shaktikanta Das announced that the RBI MPC has kept the SDF unchanged at 6.25 per cent, and MSF and bank rates maintained at 6.75 per cent. The reverse repo rate stands at 3.35 per cent.
Shaktikanta Das announced that the RBI MPC has kept the SDF unchanged at 6.25 per cent, and MSF and bank rates maintained at 6.75 per cent. The reverse repo rate stands at 3.35 per cent.
Indian equity markets rose higher to their intra-day high level as RBI kept the key interest rates unchanged at 6.5% and changed the policy stance to ‘Neutral’ from ‘Withdrawal of Accommodation’. The Nifty 50 touched a high of 25,190 as Governor spoke, rising 177 points.