RBI Keeps Repo Rate Unchanged As Inflation Moderates

The Reserve Bank of India decided to leave its benchmark interest rates unchanged for the second straight meeting on Thursday as inflation moderated further and previous rate hikes are set to keep inflationary pressures contained over months ahead.

The six-member Monetary Policy Committee, led by the RBI Governor Shaktikanta Das, unanimously voted to hold the repo rate at 6.50 percent, as widely expected.

The standing deposit facility rate was left unchanged at 6.25 percent and the marginal standing facility rate and the Bank Rate, both at 6.75 percent.

Das said the cumulative rate hike of 250 basis points undertaken by the central bank since May 2022 is transmitting through the economy and its fuller impact should keep inflationary pressures contained in the coming months.

The MPC voted 5-1 to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.

Although inflation is projected to decline in 2023-24 from its level in 2022-23, it would still be above the target, warranting continuous vigil, the committee said.

The headline inflation outlook was revised down to 5.1 percent from 5.2 percent for 2023-24. The risks to the outlook were assessed to be evenly balanced.

In April, consumer price inflation eased to an 18-month low of 4.70 percent from 5.66 percent in March.

Real GDP growth for 2023-24 is projected at 6.5 percent, unchanged from the previous outlook. Weak foreign demand, geo-economic fragmentations and protracted geopolitical tensions pose risks to the outlook.

Capital Economics’ economist Shilan Shah said the RBI continues to strike a hawkish tone and the door remains ajar for further hikes.

Nonetheless, with headline inflation set to remain within the target range of 2-6 percent for the foreseeable future, the next move in policy rates is likely to be down, the economist said. Shah expects rate cuts to commence from early 2024.

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