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The Reserve Bank of India's Monetary Policy Committee (RBI MPC) has decided to keep the repo rate unchanged at 6.5 per cent for the sixth consecutive time, Governor Shaktikanta Das announced on Thursday. He said the decision was taken by a majority 5-1.
The repo rate was last changed in February 2023, when it was hiked from 6.25 per cent to 6.5 per cent. Between May 2022 and February 2023, the repo rate was raised by 250 basis points (bps).
Das said that the impact of the 250 basis points hike in the repo rate is yet to unfold fully.
Earlier this week, a Business Standard poll had predicted that the repo rate would be kept unchanged.
The RBI MPC has also decided to keep its stance of "withdrawal of accommodation" unchanged with a majority of 5-1.
On inflation, Governor Das retained the forecast for 2023-24 at 5.4 per cent. For the current quarter, however, the projection was lowered to 5 per cent from 5.2 per cent earlier.
For FY25, the inflation projection has been kept unchanged at 4.5 per cent with Q1 at 5 per cent (5.2 per cent earlier), Q2 at 4 per cent, Q3 at 4.6 per cent (4.7 per cent earlier) and Q4 at 4.7 per cent.
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The RBI MPC decision comes at a time when the inflation rate in India has been below 6 per cent for four months since September 2023. However, it has not yet reached the target of 4 per cent. In December 2023, the retail inflation rate was 5.69 per cent.
The inflation had fallen to 4.87 per cent in October last year but rose to 5.55 per cent in November.
The Marginal Standing Facility rate has also been kept unchanged at 6.75 per cent. The Standing Deposit Facility rate has been kept at 6.25 per cent.
On India's economy, Das said that in 2023-24 (FY24), the GDP is projected to grow at 7.3 per cent. For FY25, the GDP growth forecast has been kept at 7 per cent with Q1 at 7.2 per cent, Q2 at 6.8 per cent, Q3 at 7 per cent and Q4 at 6.9 per cent.
Interestingly, the GDP growth forecasts for Q2FY25 and Q3FY25 have been hiked from 6.5 per cent and 6.4 per cent respectively.
READ: RBI MPC Meet LIVE Updates
READ: RBI MPC Meet LIVE Updates
According to Ranen Banerjee, partner and leader Economic Advisory, PwC India, the stance of "withdrawal of accomodation" is a surprise.
"This possibly is explained by the fiscal consolidation with government projecting a lower deficit than target in FY24 and an aggressive 5.1 per cent deficit target for FY25," he said.
"The lower government borrowings and higher international money allocations to India bonds owing to inclusion of India in the JP Morgan Emerging Markets bond index will keep a downward bias on the yields. The growth momentum is also holding up and inflationary risks are still on the horizon. The MPC therefore has decided to conserve its rate and stance gunpowder at this stage."
Shishir Baijal, chairman and managing director, Knight Frank India said, "Even though the inflationary pressures in most consumption categories have ebbed, food inflation continues to remain volatile. The RBI continues to remain watchful of inflationary expectation and liquidity condition, which is currently in deficit, and it may continue to further tighten the liquidity condition to rein in inflation."
"We believe given the tensions around the Red Sea — and its attendant impact — and given the trajectory of food prices an interest rate cut is unlikely in the April monetary policy review and would most probably come in June, if not later," said Dharmakirti Joshi, chief economist, CRISIL.
"We believe given the tensions around the Red Sea — and its attendant impact — and given the trajectory of food prices an interest rate cut is unlikely in the April monetary policy review and would most probably come in June, if not later," said Dharmakirti Joshi, chief economist, CRISIL.
