Reserve Bank of India retains repo rate, GDP projection at 6.5 pc

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The Reserve Bank of India on Friday decided to keep the policy rate unchanged for fourth time in a row as it maintains a tight vigil on inflation. The rate increase cycle was paused in April after six consecutive rate hikes aggregating to 250 basis points since May 2022.

Announcing the bi-monthly monetary policy on Friday, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) unanimously decided to keep the repo rate unchanged at 6.5 per cent.

He said the MPC will remain watchful of the inflation and remains resolute in its commitment to align inflation to the targeted level. According to him, the growth projection has been retained at 6.5 per cent for the current financial year with risks evenly balanced.

The MPC meeting took place against the backdrop of Consumer Price-based Inflation (CPI) touching 6.83 per cent in August. The September print of inflation is expected next week. The government has mandated the RBI to keep CPI inflation at 4 per cent with a margin of 2 per cent on either side.

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Meanwhile, The Reserve Bank said India is poised to become the growth engine of the world as it retained the GDP projection for the current fiscal at 6.5 per cent.

Unveiling the bi-monthly monetary policy review, Reserve Bank of India (RBI) Governor Shaktikanta Das said the domestic economy exhibits resilience on the back of strong demand.

He said the economic growth in the current year is expected to be at 6.5 per cent with risks evenly balanced. The projection is the same as was estimated in the August monetary policy.

The RBI continued to maintain status quo in the key policy rate and retained the repo rate at 6.5 per cent for the fourth time in a row.

The Reserve Bank retained the inflation forecast for 2023-24 at 5.4 per cent, and vowed to take timely measures to prevent any spillovers of global food and fuel price shocks.

Stressing that the Reserve Bank has identified high inflation as a major risk to macroeconomic stability and sustainable growth, Governor Shaktikanta Das said the September retail inflation number may be lower than August and July prints.

The headline inflation based on Consumer Price Index (CPI) moderated to 4.6 per cent in first quarter of 2023-24 as compared to 7.3 per cent in the same period a year ago.

"A significant easing of inflation pressures from its exceptionally high level in July and August is expected to materialise in September as the impact of fleeting food price shocks wane," Das said.

RBI has projected the CPI inflation at 5.4 per cent for 2023-24, with Q2 at 6.4 per cent, Q3 at 5.6 per cent and Q4 at 5.2 per cent. The risks are evenly balanced. CPI inflation for the first quarter of 2024-25 is projected at 5.2 per cent.

In August monetary policy too, the inflation for the current fiscal was projected at 5.4 per cent.

Das said while growth remains on track, the declining trend in inflation was interrupted in July-August 2023 due to price shocks in certain food items.

Volatile energy and food prices in the wake of lingering geopolitical tensions and adverse weather conditions render uncertainty to the inflation outlook.

"We remain vigilant of the evolving inflation dynamics. I would like to emphatically reiterate that our inflation target is 4 per cent and not 2 to 6 per cent.

"Our aim is to align inflation to the target on a durable basis, while supporting growth," the governor said.

He further said while near-term inflation is expected to soften on the back of vegetable price correction, especially in tomatoes, and the reduction in LPG prices; the future trajectory will be conditioned by a number of factors, including Kharif crop sown area, EL Nino conditions and demand supply mismatches. (With inputs from PTI)