The Reserve Bank of India (RBI) has kept the benchmark repo rate unchanged at 6.50% for the fourth time in a row, prompting sectors like real estate and automobile to be bullish on sales as the Indian economy moves into the festive quarter.

Liquidity, however, will be kept tight and rates high to bring inflation closer to the target of 4%.

Striving to create a balance between growth and inflation, RBI Governor Shaktikanta Das said the central bank is adopting ‘Kapil Dev’s policy’ as it decides to play the ball on merit on a turning pitch. The RBI will manage liquidity, inflation, growth, rupee and financial sector stability in an appropriate equilibrium like the legendary all-rounder Kapil Dev managed bowling, batting, fielding and captaincy.

Though the RBI has retained its retail inflation forecast for India at 5.4% for FY24, Das has cautioned that the overall outlook is clouded by uncertainties. These spring from the fall in Kharif sowing for certain key crops like pulses and oil seeds, lower reservoir levels, and volatility in global food and energy prices.

The RBI’s monetary policy committee (MPC) has raised the inflation forecast for Q2FY24 to 6.4% from 6.2% but reduced it for Q3 to 5.6% from 5.7%. “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 wanes," Das said.

The RBI Governor reiterated that “our inflation target is 4%, not 2 to 6%”, adding that “we remain vigilant to evolving inflation target".

The RBI is expected to keep the liquidity conditions tight to rein in inflation while introducing measures if there is a deficit situation. Excessive liquidity, the central bank believes, can pose risks to price and financial stability.

For managing liquidity, the central bank will consider open market operations. “Going forward, while remaining nimble, we may have to consider OMO sales to manage liquidity, consistent with the stance of monetary policy. The timing and quantum of such operations will depend on the evolving liquidity conditions,” said Das.

The RBI has retained the real gross domestic product (GDP) forecast for 2023-24 at 6.5%.

The MPC also decided by a majority of 5 out of 6 members to retain its withdrawal of accommodation stance to ensure that inflation progressively aligns to the target of 4% while supporting growth.

“Taking into account the evolving inflation-growth dynamics and the cumulative policy repo rate hike of 250 basis points which is still working through the economy, the MPC decided to keep the policy repo rate unchanged at 6.50% in this meeting. The transmission of the 250 basis points (bps) increase in the policy repo rate to bank lending and deposit rates is still incomplete and hence the MPC decided to remain focused on withdrawal of accommodation,” said Das in his policy statement.

While the key lending rate was unaltered at 6.50%, the standing deposit facility (SDF) rate also remained unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.