RBI Policy: Repo rate unchanged at 6.5%, RBI cuts FY24 inflation projection

RBI Monetary Policy: The rate-setting committee decided to continue with its stance of 'withdrawal of accommodation'

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), on Thursday, announced its decision not to raise the repo rate. While announcing the decision, RBI Governor Shaktikanta Das said that the MPC took the decision unanimously.

"The MPC decided unanimously to keep the policy change unchanged at 6.5 per cent," Das said. 

"The cumulative rate hike of 250 basis points undertaken by the MPC is transmitting through the economy and its fuller impact should keep inflationary pressures contained in the coming months. Monetary policy would need to be carefully calibrated for alignment of inflation with the target. Against this backdrop, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent," he said. 

Das added that the MPC decided, by a majority of 5 out of 6, to continue with its stance of "withdrawal of accommodation". "Jayanth R Varma expressed reservations on this part of the resolution," he said. 

He also added that the MPC will take further decisions "promptly and appropriately as required".

Last week, a poll by Business Standard had predicted that the central bank was expected to keep the repo rate unchanged at 6.5 per cent. 

The committee also kept the gross domestic product (GDP) growth projection for FY24 unchanged at 6.5 per cent. The projection for the first quarter (Q1) has been kept at 8 per cent, Q2 at 6.5 per cent, Q3 at 6 per cent and Q4 at 5.7 per cent. 

Moreover, the MPC decided to lower the inflation projection for 2023-24 (FY24) to 5.1 per cent from 5.2 per cent earlier. Das said that the inflation is expected to remain above 5 per cent throughout FY24.

"Headline inflation is projected to decline in 2023-24 from its level in 2022-23 but would still be above the target, warranting continuous vigil," he said. 

"Goal is to reach the targeted 4 per cent inflation going forward, our monetary policy actions are yielding desired results giving us space to keep rates unchanged in this meeting," Das added.

In his speech, Das also said that India's forex reserves stood at $595.1 billion on June 2. Moreover, the current account deficit is expected to have moderated further in the last quarter of the previous financial year and "should be eminently manageable" in FY24.

The RBI increased the repo rate by 250 basis points to 6.5 per cent between May 2022 and February 2023. In April 2023, the MPC decided to hit the pause button on rate hikes. RBI Governor Shaktikanta Das emphasised that it was a pause, not a pivot while retaining the possibility of further tightening.

The consumer price index-based (CPI) inflation – the main yardstick for monetary policymaking – in April declined to an 18-month low of 4.7 per cent year-on-year (YoY) (from 5.7 per cent YoY in March), well within the RBI's 2-6 per cent target band.

In the last policy announcement in April, the MPC had hit a pause button on the repo rate hikes. In his speech, while retaining the key interest rate at 6.5 per cent, Das said that it was a "pause, not a pivot". The pause came after six successive rate hikes. 

The MPC had also decided, by a five-to-one majority, to remain focused on withdrawing accommodation to ensure that inflation progressively aligns with the target while supporting growth.