The Reserve Bank of India (RBI) has kept the repo rate unchanged for the fifth consecutive time while retaining its inflation projection at 5.4% and upping the growth forecast to 7% for FY24.

The RBI-led monetary policy committee (MPC) also decided by a majority of 5 out of 6 members to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target while supporting growth.

All six members of the MPC voted to keep rates unchanged. Alongside Governor Shakikanta Das, RBI officials are Rajiv Ranjan, serving as Executive Director, and Michael Debabrata Patra, as the Deputy Governor. Shashanka Bhide, Ashima Goyal and Jayanth R Varma are the external members.

“The MPC has decided unanimously to keep the policy repo rate unchanged at 6.50%. Consequently, the standing deposit facility (SDF) rate remains at 6.25% and the marginal standing facility (MSF) rate and the bank rate at 6.75%," Das said today while announcing the bimonthly monetary policy.

The last time the repo rate hike took place was in February 2023 when it was raised from 6.25% to 6.5%. After the outbreak of the Russia-Ukraine war, the RBI kick-started a series of rate hikes since May 2022 to contain inflation.

Analysts have said that the interest rate on fixed deposits would continue to be under pressure but the easing effect would be felt after the next few quarters if this trend continues. 

Though the repo rate has seen a 2.5% rise since May 2022, banks have not raised their fixed deposit (FD) rates to a similar extent. The RBI had earlier expressed concerns about a shortfall in transmission in the interest rates. Liquidity conditions have tightened while credit growth has been high. Deposits have lagged behind a strong credit growth.

Stressing on the proactive role the RBI has played in policymaking, Das said that the central bank 'doesn't wait for the house to be on fire' before formulating policies.

"The recent pre-emptive measures taken by the Reserve Bank in respect of Banks and NBFCs were geared towards addressing potential risks and preserving the resilience of the financial sector. We do not wait for the house to catch fire and then act. Prudence at all times should be the guiding philosophy, both for the regulators and the regulated entities," Das said.

Inflation

The MPC also kept its forecast for CPI headline inflation for FY24 unchanged at 5.4%.

“The inflation outlook will be influenced by uncertain food prices, with risks especially, in November and December. The target of 4% is yet to be reached and we have to stay the course,” Das reiterated.

CPI inflation forecast: FY24 at 5.4%, Q3 and Q4 at 5.6% and 5.2%, respectively. Assuming a normal monsoon next year, RBI sees Q1FY25, Q2FY25 and Q3FY25 inflation at 5.2%, 4% and 4.7%, respectively.

The MPC remains concerned about recurring food price shocks which are impeding India’s disinflation process. “Core disinflation has been steady, indicative of the impact of past monetary policy actions. Headline inflation, however, remains volatile, with possible implications for the anchoring of expectations,” Das said

GDP Growth Rate

The real GDP growth is projected at 7% for FY24, up from 6.5% forecast earlier.

GDP growth rate forecast: FY24 at 7%, Q3FY24, Q4FY24 at 6.5%, 6%, respectively. Q1FY25, Q2FY25 and Q3FY25 forecast at 6.7%, 6.5% and 6.4%, respectively.

The three-day MPC meeting was held between 6-8 December.