The Reserve Bank of India's Monetary Policy Committee, at the conclusion of its December 2024 meeting on 6 December 2024, resolved to keep the policy repo rate unchanged at 6.50 per cent for the eleventh consecutive meeting. The six-member Committee, chaired by RBI Governor Shaktikanta Das, maintained the neutral monetary policy stance adopted in the October 2024 review, while significantly revising downward its GDP growth projection for FY2024-25 from 7.2 per cent to 6.6 per cent.
Background
The December policy review was closely watched by markets and financial institutions following the shift from a "withdrawal of accommodation" stance to a "neutral" stance in October 2024 — a move widely interpreted as signalling the beginning of a potential easing cycle. However, persistent inflationary pressures, particularly from elevated food prices, had complicated the timing of any rate reduction.
The MPC operates under the flexible inflation targeting framework mandated by Section 45ZA of the Reserve Bank of India Act, 1934, with a target of 4 per cent CPI inflation within a tolerance band of 2 to 6 per cent. The Committee's mandate requires balancing price stability with the objective of supporting economic growth.
The sharp downward revision in GDP growth — from the earlier projection of 7.2 per cent to 6.6 per cent — reflected softer-than-expected economic data in the second quarter of FY25, including a deceleration in manufacturing output and urban consumption demand.
Key Provisions
The December 2024 monetary policy statement contained the following key elements:
Policy rates unchanged: The repo rate was held at 6.50 per cent, the standing deposit facility rate at 6.25 per cent, and the marginal standing facility rate at 6.75 per cent. The Bank Rate remained at 6.75 per cent.
Growth projection revised downward: Real GDP growth for FY2024-25 was projected at 6.6 per cent, down from the earlier estimate of 7.2 per cent. Quarterly projections were revised to account for the Q2 slowdown.
Inflation projection maintained: CPI inflation for FY25 was projected at 4.8 per cent, with the MPC noting that food inflation remained the primary driver and was expected to moderate in the January-March quarter as kharif crop arrivals increased.
Enhanced fraud risk management: The RBI issued revised Master Directions on Fraud Risk Management for regulated entities, strengthening the compliance framework for banks and NBFCs in detecting, reporting, and preventing fraud.
Digital lending repository: The RBI announced the operationalisation of a digital lending app repository to enhance transparency in the digital lending ecosystem and address concerns about unauthorised lending applications.
CRR reduction: The Cash Reserve Ratio was reduced by 50 basis points to 4.0 per cent, effective in two tranches, releasing approximately Rs 1.16 lakh crore of liquidity into the banking system.
Implications for Practitioners
The decision to hold the repo rate while simultaneously reducing the CRR signals a nuanced approach by the MPC — maintaining the policy rate to anchor inflation expectations while easing systemic liquidity to support credit growth. Banking law practitioners should advise clients that the CRR reduction will improve banks' lendable resources, potentially translating to improved credit availability for borrowers.
The revised fraud risk management framework imposes enhanced compliance obligations on regulated entities, including more stringent timelines for fraud reporting and stronger governance requirements for internal fraud monitoring. Compliance teams at banks and NBFCs should prioritise reviewing their existing fraud detection systems against the new requirements.
For fintech practitioners, the digital lending app repository introduces a new regulatory touchpoint. Lending platforms operating without registration on this repository may face regulatory action, and practitioners should ensure their clients' applications are appropriately listed.