RBI Governor Shaktikanta Das on June 7, 2024, said the Monetary Policy Committee has decided to keep the repo rate unchanged at 6.5%. File
| Photo Credit: ANI

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has decided to keep the repo rate unchanged at 6.5%. The decision, taken at the MPC’s meeting on Friday, marks the eighth time in a row that the policy rate has been put on hold to keep the focus on battling high inflation.

The MPC has revised its GDP growth forecast upwards from the earlier 7% estimate to 7.2% for the financial year 2024-2025. It has also decided to remain focused on withdrawal of accommodation to ensure that inflation does not accelerate, while supporting growth.

“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2% while supporting growth,” Reserve Bank of India (RBI) governor Shaktikanta Das said after the meeting. 

Divided MPC

Mr. Das, along with MPC members Shashanka Bhide, Rajiv Ranjan, and Michael Debabrata Patra voted to keep the policy repo rate unchanged at 6.5% and to remain focused on the withdrawal of accommodation, while their colleagues Ashima Goyal and Jayanth R. Varma voted to reduce the policy repo rate by 25 basis points and for a change in stance to neutral. 

“There were signs of a more divided policy committee, with one additional member voting for a softening in stance as well as policy direction. The majority retained their cautious stance to guide inflation towards the 4% target on a durable basis, despite recent signs of disinflation,” said Radhika Rao, Executive Director and Senior Economist, DBS Bank, commenting on the decision.

Higher growth forecast

According to the MPC, high frequency indicators of domestic activity are showing resilience in 2024-25. The south-west monsoon is expected to be above normal, which augurs well for agriculture and rural demand, but headwinds from geopolitical tensions, volatility in international commodity prices, and geoeconomic fragmentation pose risks to the outlook. 

Taking various factors into consideration, real GDP growth for 2024-25 was projected at 7.2% as compared with the earlier projection of 7%, with the first quarter (Q1) growth estimate at 7.3%; Q2 at 7.2%; Q3 at 7.3%; and Q4 at 7.2%. The risks are evenly balanced.

Elevated food inflation

Emphasising that inflation has seen sequential moderation since February 2024, albeit in a narrow range from 5.1% in February to 4.8% in April 2024, the RBI Governor said that food inflation, however, remains elevated due to persistence of inflation pressures in vegetables, pulses, cereals, and spices. 

“Looking ahead, overlapping shocks engendered by rising incidence of adverse climate events impart considerable uncertainty to the food inflation trajectory,” he said, while announcing the MPC’s decisions. He added that volatility in crude oil prices and financial markets, along with the firming up of non-energy commodity prices, pose upside risks to inflation. 

Taking various factors into account, CPI inflation for 2024-25 is projected at 4.5%, with Q1 at 4.9%; Q2 at 3.8%; Q3 at 4.6%; and Q4 at 4.5%. The risks are evenly balanced.

Mr. Das emphasised that the path of disinflation has been interrupted by volatile and elevated food inflation due to adverse weather events. “Inflation is expected to temporarily fall below the target during Q2:2024-25 due to favourable base effect, before reversing subsequently. The MPC will remain resolute in its commitment to aligning inflation to the 4% target on a durable basis,” he said. 

The MPC reiterated the need to continue with the disinflationary stance, until a durable alignment of the headline CPI inflation with the target is achieved. 

The Monetary Policy Committee (MPC) of the Reserve Bank of India on August 10 decided unanimously to keep the policy repo rate unchanged at 6.50%. 
| Photo Credit: The Hindu

The Monetary Policy Committee (MPC) of the Reserve Bank of India on August 10 decided unanimously to keep the policy repo rate unchanged at 6.50%. 

Announcing the bi-monthly monetary policy on Friday, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) unanimously decided to keep the repo rate unchanged at 6.5 per cent.

The Governor said the real GDP growth for 2023-24 is projected at 6.5%. The latest CPI inflation projection for 2023-24 is at 5.4%, the same as projected previously. Indian forex reserves stood at $586.9 billion as on September 29.

Mr. Das said inflation is likely to ease in September, and the MPC would remain watchful of inflation and remain resolute in aligning inflation to the targeted level. Near-term inflation to soften on lowering of vegetable price and reduction in cooking gas cylinder rate, he added.

Domestic economy exhibits resilience on the back of strong demand, the Governor added.

Private sector capex is gaining ground as suggested by production of capital goods, he said.

The transmission of 250 basis point repo rate cut is still incomplete, the RBI Governor said.

The indications are that food inflation may not see sustained easing in Q3, the Governor added.

RBI may have to consider open market operation with regard to G-secs to manage liquidity, Mr. Das said.

RBI also has decided to double the gold loan under the bullet payment scheme to ₹4 lakh for Urban Cooperative Banks. The Payment Infrastructure Development Fund scheme has been extended by two years to December 2025. Internal Ombudsman Scheme to be further fine-tuned to safeguard the interest of customers, the Governor said.

The government has mandated the RBI to keep CPI inflation at 4 per cent with a margin of 2 per cent on either side.