NEWS

RBI keeps repo rate unchanged

RBI keeps key policy rate unchanged at 6.5% for seventh consecutive time; GDP projected at 7% and inflation at 4.5% for FY25.


  • 05 April 2024

The Reserve Bank of India (RBI) has kept the key policy repo rate unchanged at 6.5% for the seventh consecutive time and it looks unlikely that the interest rate easing would come in the next bi-monthly monetary amid geopolitical uncertainties.

Bank depositors can remain hopeful that the interest rate on fixed deposits has the potential to head north amid stiff competition among lenders. Banks have been struggling to mobilise deposits in line with the speed at which their loan book is growing.

The six-member Monetary Policy Committee (MPC) policy, headed by RBI Governor Shaktikanta Das, also maintained the policy stance at ‘withdrawal of accommodation’.  This is RBI's first bi-monthly monetary policy in the current financial year.

“The MPC decided by a majority of 5 out of 6 members to remain focused on the ‘withdrawal of accommodation’ to ensure that inflation progressively aligns to the target, while supporting growth," said Das.

The Standing Deposit Facility (SDF) rate was retained at 6.25% and the Marginal Standing Facility (MSF) rate and Bank Rate stood at 6.75%.

The RBI had paused the rate increase cycle last April after six straight rate hikes of 250 basis points since May 2022.

The market hopes monetary policy easing will find room in the coming months if inflation glides lower along the projected target of 4%.

"As the path of disinflation needs to be sustained till inflation reaches the 4% target on a durable basis, the MPC decided to keep the policy repo rate unchanged at 6.50% in this meeting. Monetary policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission. The MPC will remain resolute in its commitment to aligning inflation to the target," Das said

Inflation at 4.5% for FY25
Das said inflation is moving closer to targets even as the RBI has projected India’s retail inflation for FY25 at 4.5%, based on the assumption of a normal monsoon season this year. This is lower than the inflation of 5.4% in the last fiscal. 
The RBI estimates the consumer price index-based (CPI) inflation for the current fiscal at 4.9% for Q1, 3.8% for Q2, 4.6% for Q3 and 4.5% for Q4. 
According to Das, the RBI will remain vigilant on food prices, given the forecast of higher temperatures between April-June. The impact of reduction in fuel prices on inflation will deepen in the coming months, the RBI Governor said. 
However, uncertainties in food prices continue to pose challenges. "Food inflation continues to exhibit considerable volatility which is impeding the ongoing disinflation process," Das said.
Core inflation has declined steadily over the last nine months while fuel component remained in deflation for six straight months, Das said. 
Two years ago, CPI inflation had peaked at 7.8% in April 2022. The elephant in the room back then was inflation. The elephant has now gone out for a walk and appears to be returning to the forest.
"We would like the elephant to return to the forest and remain there on a durable basis. In other words, it is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns to the target on a durable basis. Till this is achieved, our task remains unfinished," Das said.
Robust growth prospects provide space for the policy to remain focussed on inflation, he added.
RBI projects growth at 7% for FY25
The RBI has maintained India’s real GDP growth rate for FY25 at 7%. 
For the April-June quarter, the growth is projected at 7.1%. In the subsequent quarter, the central bank forecasts growth to be at 6.9%. In Q3 and Q4, growth is projected to be at 7% each, with risks evenly balanced.
"The rural demand is catching up and consumption is expected to support economic growth in FY25," RBI governor Shaktikanta Das said. However, he warned that the high global debt-to-GDP ratio may have spill-over effect on emerging economies.
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