RBI Governor-led MPC Keeps Repo Rate Unchanged At 6.50%

The Reserve Bank Governor Shaktikanta Das on Thursday announced that the MPC has decided to keep the interest rates unchanged at 6.50 per cent. The decision to keep the policy interest rate unchanged was unanimous, said the RBI Governor. This is the third time that the 6 member Monetary Policy Committee has decided to keep the key rates unchanged.

Consequently the Marginal Standing Facility rate and the bank rate were at 6.75 per cent and the Standing Deposit Facility rate remained at 6.25 per cent.

The Monetary Policy Committee voted 5:1 majority to maintain the withdrawal of the accommodation stance to ensure inflation aligns with target while supporting growth.

During his speech he said that the economy continues to grow at a reasonable pace and India is contributing approximately 15 per cent to global growth. He also added, "Banks remain healthiest in more than a decade, with historic high levels of capital."

Inflation to hike in July, August

Talking about inflation during his speech on Thursday Das said that inflation is expected to surge in July and August due to the vegetable prices and the headline inflation remains higher than 4 per cent target.

Das said, " While the vegetable price shock may reverse quickly, possible El Nino weather conditions along with global food prices need to be watched closely against the backdrop of a skewed southwest monsoon so far."

The RBI Governor said RBI is prepared to act if there is a need and he further said the cumulative rate hikes of 250 bps have been working into the economy. The MPC wants to remain watchful and evaluate the emerging situation, he added.

He also added that the MPC is resolute in its commitment to align the inflation with the target of 4 per cent and anchoring inflation expectations.

He also added that global growth will remain low by historical standards for the upcoming few years.

Growth projection

RBI retains growth projection at 6.5 per cent for FY'24 with risks evenly balanced, says Governor Das. The central bank also ups retail inflation projection to 5.4 per cent during FY '24 from an earlier estimate of 5.1 per cent due to vegetable price shocks.

The second quarter retail inflation is projected at 6.2 per cent, the third quarter inflation at 5.7 per cent and the fourth quarter inflation at 5.2 per cent in FY 2023-24.

While the governor said, Cash Reserve Ratio (CRR) remained unchanged at 4.5 per cent, he also added that the net FDI fell to USD 5.5 billion during April-May compared to USD 10.6 billion in corresponding period last year.

MPC meet

The three-day meeting where the decision was made started on Tuesday this week. The MPC meeting took place against the backdrop of consumer price-based (CPI) inflation on some food items like tomato, wheat and rice that have witnessed a surge in price in the last few weeks.

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

Repo rate pause

RBI's monetary policy committee unanimously decided in its previous meeting to keep the repo rate unchanged at 6.5 per cent, which was in sync with the market expectations. The central bank in April had also decided to maintain the repo rate.

The RBI in total had raised its repo rate by 250 points cumulating to 6.5 per cent since May 2022 before it decided to put a pause on the cycle.

For those not aware, Repo rate is the rate of interest at which the central bank lends to other banks in the country.

The RBI holds six bi-monthly meetings in a financial year where decisions on interest rates, inflation outlook, money supply and other macroeconomic indicators are made.