RBI maintains status quo on Repo, policy rates, but changes stance to Neutral

The Reserve Bank of India (RBI) announced its fourth bi-monthly monetary policy for FY25 today, October 9. The RBI’s rate-setting committee (MPC) kept the benchmark repo rate unchanged at 6.5% for the tenth straight meeting. However, RBI maintains the status quo on policy rates, but changes its stance to Neutral from ‘withdrawal of accommodation’; GDP for FY25 projected at 7.2%

Withdrawal of accommodation means reducing the money supply in the system which will rein in inflation, while a “neutral stance” gives the RBI the flexibility to adjust interest rates based on inflation.

The RBI’s policy stance is important because it helps the bank balance the need to support domestic growth with the need to control inflation. RBI has maintained a withdrawal of accommodation stance since June 2022, to ensure that inflation remains within target, going forward while supporting growth.

The current reserve ratios and key policy rates which remain unchanged are as under.

*SDF is the new floor for policy rates introduced by RBI in April 2022, as a mechanism to curb inflation by absorbing liquidity. The SDF rate is applied for which banks park their excess funds with the RBI without any collateral. However, the earlier system of reverse repo rate will remain as part of RBI’s toolkit and its operation will be at the discretion of the RBI for purposes specified from time to time, according to RBI’s announcement. This move of RBI makes the reverse repo rate redundant for now.