RBI keeps repo rate steady, SDF and MSF also remain unchanged

The Reserve Bank of India (RBI) surprised everyone by keeping the repo rate steady at 6.5 per cent for the 11th consecutive time although many expected a cut after GDP growth dropped to 5.4 per cent.

The Monetary Policy Committee (MPC) decided, by a 4-2 vote, not to change the repo rate. Two other key rates also remain the same:

SDF (Standing Deposit Facility): This is the rate (6.25 per cent) at which banks can park their extra funds with the RBI without needing to give any collateral.

MSF (Marginal Standing Facility): This is the rate (6.75 per cent) at which banks can borrow money from the RBI in emergencies, often higher to discourage frequent borrowing.

Not pushing for growth

The RBI has kept its stance neutral, meaning it is neither aggressively pushing for growth nor trying to tighten policies. The Cash Reserve Ratio (CRR) has been reduced by 50 basis points to 4 per cent to address high inflation and weak GDP growth.

The real GDP growth for FY25 is now projected at 6.6 per cent. For Q3, growth is expected to be 6.8 per cent, increasing to 7.2 per cent in Q4. The RBI Governor, Shaktikanta Das, said growth is forecast at around 7 per cent for the first half of FY26.

Inflation to rise and dip

The inflation for FY25 is projected at 4.8 per cent. For Q3, it is expected to rise to 5.7 per cent but is anticipated to decline to 4.5 per cent with a further dip to 4 per cent in Q2FY26.

Many expected the RBI to cut the CRR (Cash Reserve Ratio), but it didn’t. Das said high-frequency data shows the economy may have hit its lowest point in Q2 and could stabilise soon. He also emphasised balancing inflation control with supporting economic growth.

Recent data highlights some challenges:

• Private consumption (people’s spending) slowed to 6 per cent from 7.5 per cent.
• Fixed investment (business spending) dropped to 5.4 per cent from 7.5 per cent.
• Government spending rebounded to 4.4 per cent after shrinking in June due to elections.

Meanwhile, corporate earnings are under pressure, and sales growth is weak, Das pointed out. He said the weaknesses in the manufacturing sector were not widespread, indicating that the challenges were limited to specific areas rather than affecting the entire industry.