The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), based on the macroeconomic situation and its outlook, decided unanimously on Thursday to keep the policy repo rate unchanged at 6.5% with readiness to act, should the situation so warrant.
Consequently, the standing deposit facility (SDF) rate will remain unchanged at 6.25% and the marginal standing facility (MSF) rate and the bank rate at 6.75%.
The MPC also decided by a majority of 5 out of 6 members to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.
Explaining the MPC’s rationale for these decisions on the policy rate and the stance, Governor Shaktikanta Das in his monetary policy statement said, “While the recent high frequency indicators suggest some improvement in global economic activity, the outlook is now tempered by additional downside risks from financial stability concerns”.
“Headline inflation is moderating but remains well above the targets of central banks. These developments have led to heightened volatility in global financial markets as reflected in sizeable two-way movements in bond yields,,” he said.
He said amidst this volatility, the banking and non-banking financial service sectors in India remain healthy and financial markets have evolved in an orderly manner.
“Economic activity remains resilient and real GDP growth is expected to have been 7% in 2022-23. Consumer price inflation, however, has increased since December 2022, driven by price pressures in cereals, milk and fruits. Core inflation remains elevated,” he said.
Stating that monetary policy actions taken since May 2022 were still working through the system, he said accordingly, the MPC decided to keep the policy rate unchanged to assess the progress made so far, while closely monitoring the evolving inflation outlook.
“The MPC will not hesitate to take further action as may be required in its future meetings,” he emphasised.
Mr. Das said the protracted geopolitical tensions and global financial market volatility pose downside risks to the outlook. Taking all these factors into consideration, real GDP growth for 2023-24 is projected at 6.5%, with Q1 at 7.8%; Q2 at 6.2%; Q3 at 6.1%; and Q4 at 5.9%. The risks are evenly balanced, he said.
Commenting on inflation, Mr. Das said the rising uncertainty in international financial markets and imported inflation pressures need to be monitored closely.
Taking into account various factors and assuming an annual average crude oil price (Indian basket) of $85 per barrel and a normal monsoon, CPI inflation is projected to moderate to 5.2% for 2023-24; with Q1 at 5.1%; Q2 at 5.4%; Q3 at 5.4%; and Q4 at 5.2%. The risks are evenly balanced.
