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RBI keeps repo rate unchanged at 6.5 pc; raises growth projection to 7.2 pc

The rate increase cycle was paused in April 2023 after 6 consecutive hikes

Maintaining the status quo for the eighth consecutive time, The Reserve Bank of India, on Friday, decided to keep the repo rate unchanged at 6.5 per cent. The rate increase cycle was paused in April last year after six consecutive rate hikes.

Announcing the second bi-monthly monetary policy for the current financial year, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) “decided by a 4:2 majority to keep the policy repo rate unchanged at 6.5 per cent.”

“Consequently, the standing deposit facility (SDF) rate remains at 6.25 per cent, and the marginal standing facility (MSF) rate and the bank rate at 6.75 per cent..."

The RBI raised the growth projection to 7.2 per cent from an earlier estimate of 7 per cent for the current financial year.

“GDP growth that we are now projecting for the current financial year 2024-25 is 7.2 per cent with Q1 at 7.3 per cent, Q2 at 7.2 per cent Q3 at 7.3 per cent, and Q4 at 7.2 per cent,” Das said, and added that the risks are evenly balanced.

The provisional estimates released by the National Statistical Office (NSO) placed India's real gross domestic product, that is GDP growth, at 8.2 per cent for the year 2023-24, Das said.

He observed that so far, in the financial year 2024-25, the domestic economic activity has maintained resilience and added that manufacturing activity continues to gain ground on the back of strengthening domestic demand.

“The 8 core industries posted healthy growth in April 2024. Purchasing Managers Index, that is PMI in manufacturing continued to exhibit strength in May 2024 and it is indeed the highest globally. The services sector maintained buoyancy as evident from available high-frequency indicators.”

The inflation growth balance is moving favourably, he noted.

“Growth is holding firm. Inflation continues to moderate, mainly driven by the core component, which reached its lowest level in the current series In April 2024. The deflation in fuel prices is ongoing. Food inflation, however, remains elevated.”

While the MPC took note of the disinflation achieved so far without hurting growth, it remains vigilant to any upside risks to inflation, particularly from food inflation, which could possibly derail the path of disinflation, the governor noted.

“Hence, monetary policy must continue to remain disinflationary and be resolute in its commitment to aligning inflation to the target of 4 per cent on a durable basis. Sustained price stability would set strong foundations for a period of high growth. Accordingly, the MPC decided to keep the policy repo rate unchanged at 6.5 per cent in this meeting of the MPC. The MPC also decided to remain focused on withdrawal of accommodation to ensure anchoring of inflation expectations and fuller policy transmission..."

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