Repo Rate Hike Pause Continues at 6.5%
In a recent announcement by the Reserve Bank of India (RBI), the Monetary Policy Committee (MPC) decided to maintain the repo rate at 6.5%, marking the fourth consecutive pause in rate hikes. RBI Governor Shaktikanta Das revealed that this decision was unanimous among the committee members. The MPC, with a majority vote of 5:1, has opted to prioritize the withdrawal of accommodation in the current economic landscape.
Previous Rate Hikes and Pause
This decision comes after a series of repo rate increases by the RBI, which began in May 2022 and culminated in a cumulative 250 basis point hike. However, in April, the MPC decided to put a pause on further rate hikes, a stance that has been maintained since then.
India’s Role as a Global Growth Engine
Governor Das also highlighted India’s promising position as a potential growth engine for the world economy. Despite challenges, the RBI is optimistic about India’s prospects for economic expansion.
One of the central concerns addressed by Governor Das was inflation. He emphasized that high inflation poses a significant risk to both macroeconomic stability and growth. The RBI is committed to bringing inflation within the tolerance limits set by the government.
Official data revealed that India’s retail inflation surged to a 15-month high of 7.44% in July, primarily driven by rising prices of vegetables and other food items. Nevertheless, there has been a moderation in the prices of agricultural commodities since August, providing some relief to the MPC.
Governor Das expressed optimism about a further cooling of inflation in September, attributed to the softening of food prices. However, he also acknowledged the potential threat posed by a decline in kharif sowing. The government has mandated that the RBI aims to maintain the Consumer Price Index (CPI)-based inflation at 4%, with a tolerance margin of 2% on either side.
For the fiscal year 2023-24 (FY24), the RBI’s CPI-based inflation forecast remains at 5.4%. There has been a slight adjustment in the Q2FY24 projection, which has been revised from 6.2% to 6.4%. However, for Q3FY24, the inflation projection has been reduced to 5.6% from the previous 5.7%. The projection for Q4FY24 remains unchanged at 5.2%. Looking ahead to Q1FY25, the inflation projection is maintained at 5.2%.
Governor Das also provided insights into India’s economic growth. The real Gross Domestic Product (GDP) forecast for the fiscal year 2023-24 (FY24) remains steady at 6.5%.
In conclusion, the RBI’s decision to maintain the repo rate and its focus on inflation control and economic growth underline its commitment to steer India’s economy towards stability and prosperity amid evolving global and domestic challenges.