The Reserve Bank of India (RBI) held its fifty-second Monetary Policy Committee (MPC) meeting from December 4 to 6, 2024, where it decided to maintain the policy repo rate at 6.50% while reducing the cash reserve ratio for banks.

During the meeting, RBI Governor Shaktikanta Das emphasized the importance of restoring the inflation-growth balance to enhance purchasing power and support consumption and investment.

MPC member Nagesh Kumar raised concerns about the deteriorating economic conditions, noting a significant decline in GDP growth from 8.2% in 2023-24 to 5.4% in the second quarter of 2024-25.

This slowdown in GDP, which fell to 5.4% in the July-September period, marks the slowest growth in seven quarters and coincides with rising inflation and pressure on the rupee.

In light of these developments, most analysts have downgraded GDP growth forecasts for 2024-25 from around 7% to approximately 6.5%, with the RBI adjusting its forecast to 6.6% from 7.2%.

Michael Debabrata Patra highlighted that improving private consumption and investment is crucial for economic recovery, especially as exports face external challenges.

He also noted that any monetary policy support should wait for a sustainable decline in inflation, as private investment relies on strong domestic demand recovery.

Despite elevated inflation, which is projected at 4.8% for 2024-25, it remains within the tolerance band above the 4.0% target.

Das reiterated the need to align inflation with targets and preserve disinflation gains, as reflected in the minutes of the meeting released on December 20, 2024.

Some MPC members, including Nagesh Kumar and Ram Singh, advocated for a 25 basis point rate cut to stimulate growth, while others supported maintaining the current rate.

RBI Executive Director Rajiv Ranjan acknowledged the complex trade-offs in policy and emphasized the need to closely monitor upcoming economic data.

Overall, the MPC's decision reflects a cautious approach to balancing inflation management with the need to support economic growth.