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%.
Consequently, the standing deposit facility (SDF) rate remains 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 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, RBI governor Shaktikanta Das in his statement said, “Headline inflation, after reaching a low of 4.3% in May 2023, rose in June and is expected to surge during July-August led by vegetable prices.”
“While the vegetable price shock may reverse quickly, possible El Niño weather conditions along with global food prices need to be watched closely against the backdrop of a skewed south-west monsoon so far. These developments warrant a heightened vigil on the evolving inflation trajectory,” he said.
“The cumulative rate hike of 250 basis points undertaken by the MPC is working its way into the economy. Nonetheless, 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,” he added.
Consequently, the MPC decided to keep the policy repo rate unchanged at 6.50% with preparedness to act, should the situation so warrant, Mr. Das said.
He said the MPC remained resolute in its commitment to aligning inflation to the 4 per cent target and anchoring inflation expectations.
Taking all various factors into consideration, the Governor said the real GDP growth for 2023-24 is projected at 6.5% with Q1 at 8.0%; Q2 at 6.5%; Q3 at 6.0%; and Q4 at 5.7%. Real GDP growth for Q1:2024-25 is projected at 6.6%. The risks are evenly balanced.
Given the continuing external uncertainties, the latest CPI inflation projection for 2023-24, assuming a normal monsoon, has been revised to 5.4%, with Q2 at 6.2%, Q3 at 5.7% and Q4 at 5.2%. CPI inflation for Q1:2024-25 is projected at 5.2%. The risks are evenly balanced.
The Governor said considering the difficulties in major economies, the Indian economy is better placed. “India can become the new growth engine of the world,” he said.