RBI’s MPC Keeps Repo Rate Unchanged at 6.5%
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) unanimously decided to maintain the repo rate at 6.5 percent. The MPC believes that the previous rate hikes are effectively transmitting through the economy and will help contain inflation in the coming months.
Inflation Projection Revised Slightly Downward
The MPC revised down the inflation projection for FY24 to 5.1 percent from 5.2 percent, although it is expected to remain above the target of 4 percent throughout the fiscal year. The consumer price index-based (CPI) inflation in April stood at 4.7 percent YoY, within the RBI’s target range of 2-6 percent.
GDP Growth Projection Unchanged
The committee kept the GDP growth projection for FY24 unchanged at 6.5 percent. The quarterly projections are as follows: 8 percent for Q1, 6.5 percent for Q2, 6 percent for Q3, and 5.7 percent for Q4.
Continued Withdrawal of Accommodation
The MPC, with a majority of five out of six members, decided to maintain its stance of “withdrawal of accommodation” to ensure inflation aligns with the target while supporting growth. However, one member expressed reservations on this decision.
RBI Governor’s Statement
RBI Governor Shaktikanta Das stated that the MPC will make prompt and appropriate decisions as required. He also mentioned that India’s forex reserves stood at $595.1 billion on June 2, and the current account deficit is expected to be manageable in FY24.
Previous Rate Hikes and Pause
The RBI had previously raised the repo rate by 250 basis points to 6.5 percent between May 2022 and February 2023. In April 2023, the MPC decided to pause the rate hikes, emphasizing that it was a temporary pause rather than a change in direction, while keeping the possibility of further tightening open.