The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) after a detailed assessment of the evolving macroeconomic and financial developments and the outlook, 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 to the target, while supporting growth.
Explaining the MPC’s rationale for these decisions on the policy rate and the stance, RBI governor Shaktikanta Das said, “headline inflation had surged in July driven by tomato and other vegetable prices. It corrected partly in August and is expected to see further easing in September on the back of moderation in these prices. A silver lining amidst all these is declining core inflation (i.e., CPI excluding food and fuel).”
“The overall inflation outlook, however, is clouded by uncertainties from the fall in kharif sowing for key crops like pulses and oilseeds, low reservoir levels, and volatile global food and energy prices. The MPC observed that the recurring incidence of large and overlapping food price shocks can impart generalisation and persistence to headline inflation,” he said.
“Economic activity, on the other hand, has remained resilient. Taking into account the evolving inflation-growth dynamics and the cumulative policy repo rate hike of 250 basis points which is still working through the economy, the MPC decided to keep the policy repo rate unchanged at 6.50% in this meeting,” Mr Das said.
“The transmission of the 250 basis points (bps) increase in the policy repo rate to bank lending and deposit rates is still incomplete and hence the MPC decided to remain focused on withdrawal of accommodation,” he added.
Mr Das said MPC would remain highly alert and prepared to undertake timely policy measures, as may be necessary, in order to align inflation to the target and anchor inflation expectations.
Mr Das in his monetary policy statement said, domestic demand conditions were likely to benefit from sustained buoyancy in services, consumer and business optimism, government’s continued thrust on capex, healthy balance sheets of banks and corporates, and supply chain normalisation.
However, headwinds from geopolitical tensions and geoeconomic fragmentation, volatility in global financial markets, global economic slowdown, and uneven monsoon, pose risks to the outlook.
Taking all these factors into consideration, real GDP growth for 2023-24 has been projected at 6.5% with Q2 at 6.5%; Q3 at 6.0%; and Q4 at 5.7%. The risks are evenly balanced. Real GDP growth for Q1:2024-25 is projected at 6.6%.
Similarly taking into account these factors, CPI inflation has been projected at 5.4% for 2023-24, [the same as in the previous MPC meeting] with Q2 at 6.4%, Q3 at 5.6% and Q4 at 5.2%. The risks are evenly balanced. CPI inflation for Q1:2024-25 is projected at 5.2%.