New Delhi: The Reserve Bank of India’s Monetary Policy Committee decided to keep key interest rates unchanged at 6.5 percent — the sixth time in a row — in its bi-monthly meeting, the central bank’s governor Shaktikanta Das said Thursday.
The repo rate is the rate at which the RBI lends to banks, and which influences the interest rate banks charge borrowers.
The Monetary Policy Committee (MPC) meeting commenced on 6 February, and five out of six members voted in favour of keeping the repo rate unchanged, Das said in his statement.
The RBI’s documents show committee member Jayanth R. Varma voted to reduce the policy repo rate by 25 basis points.
This was the first meeting following the presentation of the interim budget for the year by Finance Minister Nirmala Sitharaman on 1 February.
The repo rate was last changed on 8 February, 2023, when it was hiked to 6.5 percent from the earlier 6.25 percent.
The committee also decided, on a 5-1 majority, to remain focused on the “withdrawal of accommodation” to ensure inflation progressively aligned with the target while supporting growth, Das said. This means the central bank will reduce money supply into the system which will help keep inflation in check.
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“While fiscal prudence has smoothened the path for monetary policy, the RBI is wary of cutting rates or changing stance too soon given inflation is not fully tamed yet,” Dharmakirti Joshi, Chief Economist at CRISIL, told ThePrint.
“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,” he added.
Joshi further said that liquidity management has been the RBI’s preferred method to push up market interest rates and the MPC feels this is the way forward till consumer inflation is aligned to the RBI’s medium-term target of 4 percent.
Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank, told ThePrint that status quo in the repo rate was “no surprise”. “
“A prudent central bank will likely refrain from a rate cut around a major political event like the general election. Most of the major global central banks also appear to be cautious to start easing policy rates,” he said,
He added that if the economy grows by the projected 7 percent, India is set to emerge as the fastest growing large economy by a distance.
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‘Growth expected to remain stable’
The RBI governor said that global growth was expected to remain stable during 2024.
In the statement, Das provided a positive outlook for the manufacturing and services sector, while adding that the agricultural sector was expected to remain resilient.
“Rabi sowing has surpassed last year’s level as well as the normal acreage,” he said, adding, “The allied sector is also expected to provide major support to agriculture with continued momentum in horticulture and fisheries.”
Rural demand and consumption are expected to gather pace with policies like Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), he said. Urban consumption, on the other hand, has increased given the increase in income levels.
The RBI has projected real GDP growth for 2024-25 at 7 percent, with the first quarter (Q1) expected to see 7.2 percent growth; Q2, 6.8 percent; Q3, 3.7 percent; and Q4, 6.9 percent.
‘Core inflation at four-year low’
Headline inflation from April-December 2023 moderated to an average of 5.5 percent from 6.7 percent in 2022-23, Das said. He added that core inflation (CPI inflation, excluding food and fuel) moderated to a four-year low of 3.8 percent in December, which was below the target of 4 percent.
Considering an improvement in rabi sowing and a moderate monsoon, the committee has projected CPI inflation at 5.4 percent for the current year (2023-24) with inflation in the fourth quarter at 5 percent.
Further, CPI inflation for 2024-25 is projected at 4.5 percent, with Q1 at 5 percent, Q2 at 4 percent, Q3 at 4.6 percent, and Q4 at 4.7 per cent.
(Edited by Tikli Basu)