The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) unanimously chose to maintain the benchmark repo rate at 6.5%, marking the fourth consecutive time it has opted to keep the rate unchanged. This move underscores the central bank's unwavering commitment to addressing inflationary pressures while emphasizing a "withdrawal of accommodation" policy.
While announcing the policy, RBI Governor Dr Shaktikanta Das said, “After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, RBI’s Monetary Policy Committee decided unanimously to keep the Policy Repo Rate unchanged at 6.5 per cent.”
“Macroeconomic stability and inclusive growth are the fundamental principles underlying our country’s progress. The policy mix that we have pursued during recent years of multiple and unparalleled shocks has fostered macroeconomic and financial stability,” Das added.
The MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth, said the central bank chief.
The MPC remains highly alert and prepared to undertake timely policy measures, as may be necessary, in order to align inflation to the target and anchor inflation expectations.
Inflation Remains Above Tolerance Band
Despite a slight dip, India's retail inflation for August stood at 6.83%, still above the upper limit of the RBI's tolerance band. This is the fourth time this year and the seventh instance since August 2022 that inflation has breached this upper threshold.
Outlook for Inflation and GDP
Governor Das indicated that September's retail inflation is expected to ease, though a decline in kharif sowing may pose a potential threat. The RBI has retained its Consumer Price Index (CPI)-based inflation forecast at 5.4% for the fiscal year 2023-24. Projections for various quarters include a revised 6.4% for Q2, a reduction to 5.6% for Q3, and a steady 5.2% for Q4. The inflation projection for Q1FY25 remains at 5.2%.
Additionally, the RBI maintained its real gross domestic product (GDP) forecast for FY24 at 6.5%.
RBI Governor's Caution on Inflation
RBI Governor Shaktikanta Das, speaking on the decision, expressed concerns about the possibility of "recurring large overlapping food price shocks" leading to the generalization and persistence of headline inflation. His warning highlighted the potential spill-over effect of elevated food prices into other sectors, potentially causing inflation to become sticky. Governor Das pledged the RBI's vigilance in monitoring this situation closely.
Monetary Policy Anchored on "Withdrawal of Accommodation"
Governor Das further elucidated the RBI's monetary policy strategy, which centers on the "withdrawal of accommodation." This strategy underscores the central bank's intent to control inflationary pressures by curbing the money supply in the economy.
Easing Vegetable Prices
In a reassuring note, Governor Das mentioned that vegetable prices showed signs of easing in August, with expectations of further declines in September, though precise figures are due to be released in a week.
MPC Unanimously Chooses Stability
Governor Shaktikanta Das revealed that the Monetary Policy Committee (MPC) unanimously opted to maintain the policy repo rate at 6.50%. This decision followed a thorough assessment of evolving macroeconomic and financial developments and the overall economic outlook.
Stability and Growth
Governor Das emphasized the significance of macroeconomic stability and inclusive growth in India's progress. He noted that the policy mix implemented during recent years had fostered macroeconomic and financial stability. Additionally, he highlighted a transformation from a twin balance sheet stress situation a decade ago to a twin balance sheet advantage, with both banks and corporates now maintaining healthier balance sheets.
As the RBI navigates the delicate balance between economic growth and inflation control, all eyes remain on evolving economic conditions in India. The decision to hold the repo rate steady reflects the central bank's commitment to maintaining economic stability in the face of inflationary pressures.
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