The Reserve Bank of India (RBI) has unanimously decided not to raise the Repo Rate as it expects retail inflation to decline further after it eased in April.
RBI’s Monetary Policy Committee— which is responsible for fixing the benchmark interest rate— announced its decision following a meeting on Thursday.
“The MPC decided unanimously to keep the policy change unchanged at 6.5 per cent,” RBI Governor Shaktikanta Das said while announcing the second bi-monthly policy for 2023-24.
Repo Rate is the rate of interest at which commercial banks in India borrow money from the Reserve Bank of India. Changes in Repo Rate affect the flow of money in the market. It is a powerful arm of the Indian monetary policy that can regulate the country’s money supply, inflation levels, and liquidity.
Das said that the MPC decided, by a majority of 5 out of 6, to continue with its stance of “withdrawal of accommodation”. The MPC will take further decisions “promptly and appropriately as required”, he added.
While keeping the interest rate intact, Das said that headline inflation remains above RBI’s target of 4 per cent and expected it to remain so during the rest of the year.
The inflation projection has been slashed marginally to 5.1 per cent from an earlier estimate of 5.2 per cent for the current financial year. He said retail inflation has been below the upper band of 6 per cent for the last two years.
Indian economy expected to grow 6.7 per cent in 2024, says UN report
The meeting took place against the backdrop of a decline in the Consumer Price-based (CPI) inflation—– the primary yardstick for monetary policymaking—as it reached an 18-month low of 4.7 per cent in April. The RBI governor had recently indicated that the CPI for May is expected to be lower than the April figures. The CPI for the last month will be disclosed on June 12.
Experts say that the RBI’s decision reflects its commitment to attain twin objectives—keep inflation at bay while supporting business.
“Headline inflation remains high but it’s shaping towards RBI’s comfort zone. The RBI keeping the repo rate paused at 6.50 is certainly a big breather for existing and prospective borrowers who were waiting for rising interest rates to settle. Borrowers whose loan tenures increased due to back-to-back hikes may now consider making partial or full repayment of their loans as the repo rate remains unchanged,” Adhil Shetty, CEO, Bankbazaar.com—one of India’s largest online financial service providers, told WION.
“RBI’s decision showcases the central bank’s prudent approach towards maintaining stability and fostering sustainable economic growth considering the global economic risks and uncertainties. By keeping interest rates steady, the RBI has exhibited its commitment to strike a delicate balance between addressing inflation concerns and supporting businesses.”
RBI retains FY24 GDP growth forecast at 6.5%
Meanwhile, the RBI retained the GDP growth projection for the current fiscal year at 6.5 per cent, on the back of supportive domestic demand conditions.
In April, the central bank had marginally revised upwards the 2023-24 GDP growth projection to 6.5 per cent, from its earlier forecast of 6.4 per cent.
India’s economy grew 6.1 per cent in the fourth quarter of 2022-23, pushing up the annual growth rate to 7.2 per cent, as against the 7 per cent anticipated earlier.
Das said the higher rabi crop production in 2022-23, the expected normal monsoon, and the sustained buoyancy in services should support private consumption and the overall economic activity in the current year.
The government’s thrust on capital expenditure, moderation in commodity prices and robust credit growth are expected to nurture investment activity, said the Monetary Policy Statement, 2023-24.
Weak external demand, geo-economic fragmentation, and protracted geopolitical tensions, however, pose risks to the outlook, it added.
“Taking all these factors into consideration, real GDP growth for 2023-24 is projected at 6.5 per cent with Q1 at 8 per cent, Q2 at 6.5 per cent, Q3 at 6 per cent, and Q4 at 5.7 per cent, with risks evenly balanced,” the governor said.
Headline inflation projected at 5.1%
RBI Governor Shaktikanta Das said that CPI headline inflation is projected at 5.1 per cent for FY2023 after taking into account a normal monsoon in the country.
“All is well for Kharif crops. Uncertainiltuy however remain on special and temporal distribution of monsoon, and Al Nino. Taking into account all factors and assuming a normal monsoon, CPI headline inflation is projected at 5.1 per cent for 2023-24,” Shaktikanta Das said.
He said that the Indian economy and financial sector come out as strong and resilient. “The domestic macroeconomic fundamentals are strengthening. The current account deficit is expected to have moderated and remain eminently manageable in 2023-24. The rupee remained stable since January this year and India’s foreign exchange reserves stood at $595.1 billion as on June 2,” he added.
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