RBI Holds Repo Rate Steady in Latest Monetary Policy Review

The Reserve Bank of India's Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, has decided to maintain the status quo on the benchmark repo rate, keeping it at 6.5%. This decision marks the eighth consecutive time the rate has remained unchanged. The majority vote of 4:2 by the committee members supported this outcome. The unchanged repo rate signifies the central bank's cautious approach towards steering the economy while balancing growth and inflation concerns.

Stable Lending Rates

In line with the steady repo rate, the associated lending rates have also been kept unchanged. The standing deposit facility rate remains at 6.25%, which is 25 basis points lower than the repo rate. Similarly, the marginal standing facility rate holds at 6.75%, 25 basis points above the repo rate. Previously, the MPC had raised the repo rate by a total of 250 basis points before pausing rate changes in April of the last year.

Persistent Inflationary Pressures

Despite moderating trends, headline inflation continues to surpass targeted levels, primarily driven by food price volatility. The committee projects the Consumer Price Index (CPI) inflation for the fiscal year 2024-25 at 4.5%. Food prices and industrial metal costs, along with volatile crude oil prices, are significant factors impacting the inflation forecast. The anticipation of a normal monsoon season, however, is seen as a positive factor that may help stabilize food prices and contribute to a balanced inflation outlook.

Growth Trajectory

The Indian economy exhibits resilience with positive momentum in its growth trajectory, with the official GDP growth rate pegged at 8.2% for FY24. The MPC has revised the growth forecast for the following fiscal year (FY25) to 7.2%, up from 7.0%. Contributing factors to this optimistic growth view include expected agricultural boosts from a normal monsoon, rebounding private consumption supported by rising income levels, and promising investment potential from business optimism and robust government capital expenditures.

The central bank affirms its commitment to manage liquidity prudently to ensure market stability. RBI Governor Shaktikanta Das highlighted the bank's operational flexibility and clarified that decisions are taken based on domestic conditions, rather than merely mirroring actions by the Federal Reserve.

RBI, MPC, Inflation