Reserve Bank of India (RBI) on Thursday left the key policy rate — repo rate — unchanged at 6.50 per cent. RBI Governor Shaktikanta Das said that the six-member monetary policy committee (MPC) unanimously decided to keep the lending rate unchanged at 6.50 per cent.
The central bank’s committee also retained its withdrawal of accommodation stance to ensure that the retail nflation remains within the target of 4 per cent.
The RBI’s MPC has kept the repo rate unchanged for the last three cycles now. Before that, the central bank’s policy committee hiked the repo rate by 250 basis points from May 2022 to February 2023.
Das said that the headline inflation after reaching a low of 4.3 per cent in May 2023, rose in June and is expected to surge during July and August, led by vegetable prices.
The RBI has projected India’s Q2 retail inflation at 6.2 per cent; Q3 at 5.7 per cent and Q4 at 5.2 per cent in the current fiscal year.
Das said that the CPI inflation forecast for FY2023-24 has been raised to 5.4 per cent from 5.1 per cent due to vegetable price shocks, while GDP forecast has been retained at 6.5 per cent, with risks evenly balanced.
“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 skewed Southwest Monsoon.”
He continued, “These developments warrant a heightened vigil on the evolving inflation trajectory.”
“The cumulative rate hike of 250 basis points, undertaken by the MPC so far, is working its way into the economy. Nevertheless, domestic economic activity is holding up well, and is likely to retain its momentum, despite, weak external demand. Considering this confluence of factors, the MPC decided to remain watchful and evaluate the emerging situation.”
“Consequently, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent, with preparedness to act, should the situation so warrant. The MPC remains resolute in its commitment to align inflation to the 4 per cent target, and anchoring of inflation expectations,” the RBI governor said.
The RBI also asked banks to set aside a larger part of incremental deposits to tighten liquidity. With effect from the August 12 fortnight, banks shall maintain an incremental cash reserve ratio of 10 per cent on increase in deposits between May 19 and July 28, Das said.