After assessing the current and evolving macroeconomic situation, the MPC unanimously decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25% with immediate effect. Consequently, the standing deposit facility (SDF) rate shall stand adjusted to 6% and the marginal standing facility (MSF) rate and the Bank Rate to 6.50%.

The MPC decided to continue with the neutral monetary policy stance and remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.

On the domestic front, as per the First Advance Estimates (FAE), real gross domestic product (GDP) is estimated to grow at 6.4% (y-o-y) in 2024-25 supported by a recovery in private consumption. Meanwhile, CPI inflation for 2024-25 is projected at 4.8% with Q4 at 4.4%.

Looking ahead, healthy rabi prospects and an expected recovery in industrial activity should support economic growth in 2025-26. Real GDP growth for 2025-26 is projected at 6.7% with Q1 at 6.7%; Q2 at 7.0%; and Q3 and Q4 at 6.5% each. The risks are evenly balanced.

Going ahead, food inflation pressures, absent any supply side shock, should see a significant softening due to good kharif production, winter-easing in vegetable prices and favourable rabi crop prospects. Assuming a normal monsoon next year, CPI inflation for 2025-26 is projected at 4.2% with Q1 at 4.5%; Q2 at 4.0%; Q3 at 3.8%; and Q4 at 4.2%.

The MPC noted that inflation has declined. Supported by a favourable outlook on food and continuing transmission of past monetary policy actions, it is expected to further moderate in 2025-26, gradually aligning with the target. The MPC also noted that though growth is expected to recover from the low of Q2:2024-25, it is much below that of last year. These growth-inflation dynamics open up policy space for the MPC to support growth, while remaining focussed on aligning inflation with the target.

At the same time, excessive volatility in global financial markets and continued uncertainties about global trade policies coupled with adverse weather events pose risks to the growth and inflation outlook. This calls for the MPC to remain watchful.

The minutes of the MPC’s meeting will be published on February 21, 2025. The next meeting of the MPC is scheduled during April 7 to 9, 2025.

Following the RBI announcement, the Nifty Bank index was down 0.35% at 50,204.70 while the benchmark Nifty 50 index was down 0.19% to 23,559.

SBI (down 1.4%), Axis Bank (down 1.19%), Bank of Baroda (down 1.08%), ICICI Bank (down 0.99%), PNB (down 0.48%), Canara Bank (down 0.31%), Kotak Mahindra Bank (down 0.2%) and HDFC Bank (down 0.07%) declined.

IDFC First Bank (up 0.02%), Federal Bank (up 0.09%), Indusind Bank (up 0.34%) and AU Small Finance Bank (up 2%) rose.