RBI Keeps Interest Rate Unchanged At 6.5 Pc For Sixth Consecutive Time
Mumbai, Feb 8: The Reserve Bank of India on Thursday decided to keep policy rate unchanged for the sixth time in a row in view of global uncertainty and the need to bring down retail inflation to 4 per cent.
Following RBI’s decision to maintain status quo, banks and financial institutions will largely keep lending rates stable.
RBI had last raised repo rate in February 2023 to 6.5 per cent after six consecutive rate hikes aggregating to 250 basis points since May 2022.
Announcing the decision of the Monetary Policy Committee (MPC), RBI Governor Shaktikanta Das on Thursday said it has decided to keep the policy repo rate unchanged on the basis of an assessment of the current and evolving macroeconomic situation.
MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target while supporting growth, he said.
These decisions are in consonance with the objective of achieving the medium-term target for Consumer Price Index (CPI) inflation of 4 per cent within a band of +/- 2 per cent while supporting growth.
For 2024-25, RBI has projected a growth rate of 7 per cent and retail inflation at 4.5 per cent with risks evenly balanced.
The real GDP growth for the next financial year is projected at 7 per cent with Q1 growth at 7.2 per cent, Q2 at 6.8 per cent, Q3 at 7 per cent and Q4 at 6.9 per cent.
As per the National Statistical Office (NSO), the country is expected to record a growth rate of 7.3 per cent in the current financial year ending March 2024.
“Domestic economic activity is strengthening. As per the first advance estimates released by the NSO real Gross Domestic Product (GDP) is expected to grow by 7.3 per cent, year-on-year (y-o-y) in 2023-24, underpinned by strong investment activity,” Das said.
On the supply side, he said that Gross Value Added (GVA) expanded by 6.9 per cent in 2023-24, with manufacturing and services sectors as the key drivers. Talking about headwinds, he said, geopolitical tensions, volatility in international financial markets and geo-economic fragmentation pose risks to the growth outlook.
Referring to retail inflation, Das said that CPI inflation is projected at 5.4 per cent for 2023-24 with Q4 inflation at 5 per cent.
“Assuming a normal monsoon next year, CPI inflation for 2024-25 is projected at 4.5 per cent with Q1 at 5 per cent; Q2 at 4 per cent; Q3 at 4.6 per cent; and Q4 at 4.7 per cent . The risks are evenly balanced,” he said.
The MPC noted that domestic economic activity is holding up well and is expected to be backed by the momentum in investment demand, optimistic business sentiments and rising consumer confidence.
On the inflation front, large and repetitive food price shocks are interrupting the pace of disinflation that is led by the moderation of core inflation.
However, geopolitical events and their impact on supply chains, and volatility in international financial markets and commodity prices are key sources of upside risks to inflation.
“The cumulative effect of policy repo rate increases is still working its way through the economy. The MPC will carefully monitor any signs of generalisation of food price pressures to non-food prices which can fritter away the gains in the easing of core inflation,” he said.
Monetary policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission, he said, adding MPC will remain resolute in its commitment to aligning inflation to the target of 4 per cent.
MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth, he added.
This is the first bi-monthly policy following presentation of Interim Budget 2024-25 last week.
In December, CPI inflation stood at 5.69 per cent.
The government has mandated RBI to ensure CPI inflation at 4 per cent with a margin of 2 per cent on either side. (Agencies)