RBI keeps key repo rate unchanged at 6.5%, expects robust growth but inflation above 4% target

Repo rate was raised by 250 basis points between May 2022 and February 2023. Robust growth to provide space for monetary policy to remain focused on bringing inflation down to 4% target.

RBI headquarters in Mumbai | Representative image | Reuters

Mumbai: India’s monetary policy committee held the key repo rate unchanged for a seventh straight policy meeting on Friday as it expects growth in the economy to remain robust but sees inflation staying above its 4% target.

The Reserve Bank of India kept the main lending rate unchanged at 6.5%, in line with expectations. The repo rate was raised by a total of 250 basis points between May 2022 and February 2023.

Robust growth provides space for monetary policy to remain focused on bringing inflation down to the central bank’s 4% target, RBI Governor Shaktikanta Das said in his statement.

Monetary policy must remain actively disinflationary at this stage, Das said.

Five out of six members voted in favour of the rate decision while the monetary policy stance of ‘withdrawal of accommodation’ was retained with a majority of five votes.

The central bank said the Indian economy is expected to expand by 7% in the fiscal year 2025, unchanged from its earlier forecast.

Strengthening rural demand, improving employment conditions and a sustained pick up in the manufacturing sector should boost consumer demand, Das said.

Retail inflation for 2024-25 is seen at 4.5%, Das said, with volatile food prices seen as a continuing risk.

“Our effort is to ensure inflation aligns to target on a sustained basis,” Das said.

The status quo policy left markets unmoved.

The Indian rupee was little changed against the U.S. dollar at 83.4150, just above a record low hit on Thursday, while bond yields rose 2 basis points to 7.1217%. The NSE Nifty 50 index as well as the BSE Sensex were down 0.2%.

“We do not see much scope for any rate easing until the second quarter of 2024-25,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.

(Reporting by Swati Bhat and Sudipto Ganguly; writing by Ira Dugal; Editing by Savio D’Souza and Sonali Paul)

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