RBI Maintains Interest Rate at 6.5% for Sixth Consecutive Time

The Reserve Bank of India (RBI) has announced its decision to maintain the policy rate unchanged for the sixth consecutive time, citing global uncertainty and the imperative to bring down retail inflation to the target of 4 per cent.

Following this decision, banks and financial institutions are expected to largely maintain their lending rates stable.

The last time RBI raised the repo rate was in February 2023 to 6.5 per cent, after six consecutive rate hikes totaling 250 basis points since May 2022.

RBI Governor Shaktikanta Das stated that the Monetary Policy Committee (MPC) decided to keep the policy repo rate unchanged after assessing the current and evolving macroeconomic situation. The MPC aims to withdraw accommodation gradually to ensure inflation progressively aligns with the target while supporting growth.

These decisions align with the objective of achieving the medium-term CPI inflation target of 4 per cent within a band of +/- 2 per cent while also supporting growth.

For the fiscal year 2024-25, RBI has projected a growth rate of 7 per cent and retail inflation at 4.5 per cent, with balanced risks. Real GDP growth is projected at 7 per cent for the next fiscal year, with quarter-wise growth rates.

The National Statistical Office (NSO) expects the current fiscal year to witness a growth rate of 7.3 per cent.

Governor Das highlighted that domestic economic activity is strengthening, with real GDP expected to grow by 7.3 per cent in 2023-24, driven by robust investment activity. However, geopolitical tensions, financial market volatility, and geo-economic fragmentation pose risks to the growth outlook.

Regarding inflation, CPI inflation is projected at 5.4 per cent for 2023-24, with Q4 inflation at 5 per cent. Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 per cent, with quarter-wise projections.

The MPC observed that domestic economic activity remains resilient, supported by investment demand, positive business sentiments, and rising consumer confidence. However, large and recurrent food price shocks are impeding the pace of disinflation.

Geopolitical events, supply chain disruptions, and international market volatility are identified as potential upside risks to inflation. The MPC will monitor signs of food price pressures spreading to non-food prices closely.

In conclusion, the MPC reaffirmed its commitment to aligning inflation with the target of 4 per cent while supporting growth, indicating that monetary policy will continue to focus on gradual withdrawal of accommodation. This policy announcement follows the presentation of the Interim Budget 2024-25 last week.

(With Agency Inputs)