RBI Keeps Repo Rate Unchanged

The Reserve Bank of India’s Monetary Policy Committee said the repo rate will be unchanged at 6.5 per cent. This is for the second time that the central bank has kept the basic rate unchanged. At the last MPC meeting in April, the RBI paused its rate hike cycle and stayed with the 6.5 per cent repo rate. Prior to that, the central bank had cumulatively hiked the repo rate by 250 basis points since May 2022 in a bid to contain inflation.

RBI’s Monetary Policy Committee voted unanimously in favour of maintaining a status quo on interest rates. It voted in a 5:1 majority on the withdrawal of accommodation to ensure inflation aligns with the target while focusing on growth, Governor Shaktikanta Das said.

“The MPC has raised repo rates by 250 basis points since May last year, the effects of which will be seen in the coming months. MPC decides to keep repo rate unchanged at 6.5 per cent, Standing Deposit Facility Rate remains at 6.25 per cent. Marginal Standing Facility Rate and Bank Rate unchanged at 6.75 per cent,” said Das.

He added: “We can derive satisfaction from the fact that the Indian economy stands out as strong and resilient. We are acutely aware that global policy normalisation is not over.”

The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth. It said that a majority of five out of six members remain focused on the withdrawal of accommodation.

On Inflation

The Reserve Bank of India has cut the inflation aim to 5.1 per cent from 5.2 per cent forecast in April policy. Q1 inflation seen at 4.6 per cent, Q2 at 5.2 per cent, Q3 at 5.4 per cent, and Q4 at 5.2 per cent.

“The MPC took note of the moderation in CPI headline inflation in March-April into the tolerance band, in line with projections, reflecting the combined impact of monetary tightening and supply augmenting measures. Headline inflation is projected to decline in 2023-24 from its level in 2022-23 but would still be above the target, warranting continuous vigil,” the RBI said.