RBI MPC Meet 2024: Repo Rate Unchanged at 6.5%, Raises GDP Growth Forecast to 7.2% for FY25

The Reserve Bank of India (RBI) decided to keep the benchmark repo rate unchanged at 6.5% for the eighth consecutive time. The decision was made by the six-member Monetary Policy Committee (MPC) led by RBI Governor Shaktikanta Das, with a 4:2 majority. The RBI maintained its stance of 'withdrawal of accommodation' and raised its GDP growth forecast for FY25 to 7.2% from the earlier projection of 7%. The inflation forecast for FY25 was retained at 4.5%.

Governor Das emphasized the RBI's commitment to price stability, noting that while India is on the right track concerning inflation, ongoing global geopolitical conflicts, supply chain disruptions, and commodity price volatility pose challenges. The central bank also plans to take further measures to regulate unsecured loans and ensure proper fee disclosures by regulated entities. Additionally, the RBI transferred ₹2.11 lakh crore to the government as a dividend and maintained a contingent reserve buffer of 6.5%.

Inflation and Growth Projections:

• Retail inflation reached an 11-month low in April 2024 at 4.83%, remaining within the RBI's tolerance band of 2-6%.
  
• The GDP growth forecast for FY25 has been raised from 7% to 7.2%, reflecting robust economic momentum.
• The inflation projection for FY25 is retained at 4.5%, with quarterly estimates provided: Q1 at 4.9%, Q2 at 3.8%, Q3 at 4.6%, and Q4 at 4.5%.

Policy Decisions:

• The MPC decided by a 4:2 majority to keep the policy repo rate unchanged at 6.5%. Consequently, the standing deposit facility (SDF) rate remains at 6.25%, and the marginal standing facility (MSF) rate and the bank rate at 6.75%.
• The RBI emphasized the need to remain vigilant against potential inflation risks, particularly from food prices, despite the favorable balance between inflation and growth.
• The central bank will continue its 'withdrawal of accommodation' stance to ensure the anchoring of inflation expectations.

Market and Economic Impact:

• The Sensex jumped 600 points following the announcement of the raised GDP growth forecast for FY25.
  
• The RBI transferred a record dividend of ₹2.1 lakh crore to the government for FY24, driven by exceptional interest earnings from its foreign investments.

Industry Reactions:

Mr. Pradeep Aggarwal, Founder & Chairman, Signature Global (India) Ltd.

"The Reserve Bank of India (RBI) has maintained steady interest rates for the eighth consecutive time, likely influenced by high food inflation despite the overall Consumer Price Index (CPI) remaining within the target range. Provisional GDP growth for FY24 stands at an impressive 8.2%, up from 7% in FY23, further supporting this decision. Additionally, the combined Index of eight core industries (ICI) recorded a provisional growth of 6.2% in April 2024 compared to April 2023, reflecting increased production in key industries.

Economists predict that if inflation continues to decline, rate cuts of 25-50 basis points could be expected in the second half of the fiscal year. Such a reduction in interest rates could significantly boost the real estate sector, which is already benefiting from strong end-user demand. We anticipate this robust demand trend to remain healthy over the coming years, particularly in cities like Gurugram, which are experiencing substantial infrastructure development."

Mr. Yashank Wason, Managing Director, Royal Green Realty 

"We hail the decision of RBI MPC meeting to hold the benchmark rate at 6.5 percent for the eighth consecutive policy review. Maintaining the status quo augurs well for India’s growing economy. This move will keep the momentum of real estate going on. Housing sales across the country, including Delhi NCR, have been phenomenal in the last few quarters. The unchanged repo rate will boost the confidence of homebuyers to purchase properties and give breathers to home loan borrowers. The consistent stand of RBI will give stability to the real estate sector and its growth will significantly add traction to the country's growing GDP and promising future prospects."

Mr. Vipin Sharma, Founder & Chairman, Aarize Group

"The Reserve Bank of India has decided to keep the repo rate at 6.5% during its monetary policy, which will benefit the real estate sector. We believe that India's growth at 8.2% in FY 2023-24 is an outcome of the initiatives made for Viksit Bharat by 2047; the growth trajectory is predicted to continue and strengthen in the future. This stability in loan rates promotes current and future real estate investments, hence improving sector growth. Therefore, we are committed to use this growth boost to meet the increasing demand for residential and commercial spaces."

Mr. Manish Jaiswal, Group COO, Eldeco

"With the RBI maintaining the repo rate at 6.5%, we strongly support this prudent decision by the government. This stability is crucial as it ensures consistent borrowing costs, encouraging more homebuyers and investors into the market. The robust GDP growth projection of 6.5% further boosts our confidence in expanding our projects to meet the increasing demand for residential and commercial spaces."

Mr. Abhishek Trehan, Executive Director, Trehan Iris

“The RBI's decision to keep the repo rate at 6.5% is expected to bring stability to the real estate sector, creating a favorable environment for growth. This move aims to bolster the sector's momentum, potentially increasing demand for housing, especially luxury properties. As India's economy continues to grow, the real estate sector is positioned to have a significant impact on the country's development, and the RBI's repo rate policy will play a crucial role in driving that growth forward.”

Mr. Ashish Agarwal, Director, AU Real Estate

"The RBI’s decision to maintain the repo rate unchanged is a thoughtful move that will have a lasting impact on the real estate sector. This stability in interest rates will make homeownership more attainable and affordable for buyers, which in turn will drive demand for luxury housing. As India's economy continues its upward trajectory, the real estate sector is poised to play a pivotal role, and this repo rate policy will be a crucial catalyst in propelling that growth forward."

Mr. Sanjay Kumar Sinha, Founder and Managing Director, Chaitanya Projects Consultancy

”As anticipated, the RBI continues to keep the repo rate at 6.5%. However, the infrastructure industry and the economy at large would might have expected a rate cut, considering the significant growth in India’s GDP which now stands at 8.2%, also the current macro-economic parameters are favourable and the rate has been maintained at 6.5% for over a year now. This move will foster the confidence of Infrastructure, EPC (engineering, procurement, and construction) and real estate companies, which are primarily dependent on debt. Further, it indicates a stable economic environment, which can attract more private investment into infrastructure & continued support from the government.”

Mr. Dharmendra Raichura – VP & Head of Finance at Ashar Group

“The Reserve Bank of India’s decision to maintain the repo rate at 6.5% reflects its commitment to controlling inflation while supporting economic growth. Although the unchanged rate is industry-agnostic, the real estate sector anticipates lower interest rates later this year, which could provide an impetus for housing demand and sectoral growth across industries. With India’s GDP expanding robustly at 8.4% in Q3 of FY 2023/24, a future rate cut could sustain or accelerate this momentum. Developers and investors can capitalize on the conducive environment, as the residential segment is currently experiencing a bull run, with sales rising to over 74,000 units in Q1 2024. We can further expect a cut of 0.25-0.50% in H2 of FY 2024-25.”

Mr. Piyush Bothra, Co-Founder and CFO, Square Yards 

“Interest rates significantly influence consumer sentiments, particularly affecting the majority of buyers in the low-to-mid segment. The current market upcycle is driven by the premium segment, which is relatively less sensitive to minor interest rate changes. Hence, the central bank’s decision to maintain the status quo is a bit disappointing. A reduction in the benchmark rates would have been ideal as it would have given further buoyancy to the real estate market, especially in the low-to-mid segment, and would have helped a lot of first-time home buyers realize their dream of owning a house.

Although the FY25 forecast for economic growth has been upwardly revised to 7.2% from 7%, and inflation is expected to remain within the target band of 2-6%, signaling towards a positive macroeconomic scenario that will buoy the homebuyer sentiments. Given the current outlook, we anticipate the demand momentum to remain strong in property markets across all major cities in India.”

Mr. Shrinivas Rao, FRICS, CEO, Vestian

“RBI kept the repo rate stable at 6.5% for the eighth consecutive time on the back of strong growth momentum. It is a welcome move as headline inflation is still above the RBI’s upper limit of 4% despite marginally easing to 4.83% in April 2024 over the previous month. Moreover, the inflation is anticipated to increase in May 2024 due to an increase in the prices of food items amid nationwide heat waves.

This is probably the last time RBI will maintain status quo. The repo rate may start its descent from the upcoming MPC meeting as higher kharif production is expected amid an above-normal monsoon, easing the prices of food items. Furthermore, this reduction in repo rates may provide respite to the real estate sector and fuel the growth momentum further.”

Mr Ashwin Chadha, CEO, India Sotheby’s International Realty

“As expected, the MPC has decided to keep the repo rate unchanged at 6.5%. This decision aligns with the MPC’s calibrated measures to tackle persistent inflation. The RBI has successfully maintained the resilience of the Indian economy, contributing to sustained growth momentum even amidst a challenging global environment.

The good news is that CPI inflation continues to soften, and the GDP growth rate is projected to remain above 7% for all quarters of FY2024-25. Additionally, the monsoon is expected to be favorable, reducing potential risks to the economy. Given these positive indicators, we anticipate optimistic sentiments to continue, also the upward trend in housing demand, particularly in the high-end and luxury segments, will persist for the foreseeable future.”

Mr Vimal Nadar, Senior Director & Head of Research, Colliers India

“In the first MPC meeting after the recently concluded general elections, the RBI has maintained status quo. The repo rate remains at 6.5% and withdrawal of accommodation continues. This decision comes against the backdrop of a concerted effort to contain inflation close to 4% on a durable basis. Furthermore, an upward revision of FY 2025 GDP growth rate projection by 20 bps to 7.2% will fuel business optimism across sectors including real estate.

A stable financing environment will continue to benefit homebuyers and developers in both residential and commercial real estate. As central banks across the world ponder over rate cuts, the timing and pace of such reductions in India will remain a key monitorable and should provide further boost to residential activity in the ongoing fiscal year. Developers & institutional investors in the real estate sector will meanwhile continue to expect continuation of structural reforms and policy support from the incoming Central government.”

Mr. Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution Pvt Ltd.

“We welcome the Reserve Bank of India’s decision to maintain the repo rate, as it brings stability to the economic scenario. The RBI commitment to controlling inflation remains crucial, to maintain growth and resilience. The revised GDP growth projection, now expected to be between 7.2% and 7.3% for FY25, aligns well for the economy.

A robust economy, coupled with stable interest rates, promises to elevate disposable incomes and bolster borrowers confidence. It appears that the RBI MPC may continue this pause for the next couple of meetings in FY2025, with a focused view on liquidity management.”

Conclusion

RBI's decision to maintain the benchmark repo rate at 6.5% reflects its commitment to balancing economic stability with inflation control. Despite concerns over global geopolitical conflicts and supply chain disruptions, the RBI remains optimistic about India's economic trajectory, as evidenced by the upward revision of the GDP growth forecast for FY25 to 7.2%.

The central bank's emphasis on price stability underscores its cautious approach amid ongoing uncertainties. Additionally, measures to regulate unsecured loans and ensure fee disclosures aim to strengthen financial oversight.

Industry reactions to the decision vary, with some expressing support for stability in borrowing costs, while others lament the missed opportunity for rate cuts to stimulate sectors like real estate. Nonetheless, the overall sentiment appears optimistic, with expectations of sustained economic growth and market resilience.

Looking ahead, the RBI's continued focus on liquidity management suggests a proactive stance in navigating future challenges while maintaining a conducive environment for economic expansion.

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