The Reserve Bank of India (RBI) has decided to maintain the key repo rate at 6.50%, signaling its concern over rising inflation. The six-member Monetary Policy Committee (MPC) unanimously voted to keep the rates unchanged in its latest meeting, aligning with economists’ predictions and marking the third consecutive time for such a decision.
Governor Shaktikanta Das announced that the policy repo rate will remain steady at 6.50%, with the Standing Deposit Facility (SDF) rate at 6.25% and the Marginal Standing Facility (MSF) rate and bank rate at 6.75%. However, the MPC, by a majority of 5 out of 6 members, has adopted a hawkish stance, emphasizing the withdrawal of accommodation to ensure that inflation aligns with the target while still supporting economic growth.
The decision comes against the backdrop of rising inflation, which has raised concerns among policymakers. Headline inflation, after touching a low of 4.3% in May 2023, increased in June and is anticipated to surge further in July and August, largely driven by escalating vegetable prices. While the immediate impact of the vegetable price shock is expected to subside, factors such as possible El Nino weather conditions and global food prices, combined with an uneven southwest monsoon, are being closely monitored.
Governor Das noted that the cumulative rate hike of 250 basis points initiated by the MPC is gradually influencing the economy. Despite these inflationary pressures, domestic economic activity remains resilient and is expected to maintain its momentum, even in the face of weakened external demand.
Given these complex dynamics, the MPC has chosen to remain vigilant and assess the evolving situation. Governor Das stressed the committee’s commitment to aligning inflation with the target of 4% while also anchoring inflation expectations. His statement hinted that the MPC stands ready to take action as required by the prevailing circumstances.
In conclusion, the RBI’s decision to keep the repo rate unchanged reflects its cautious approach in the face of mounting inflation concerns. The central bank’s hawkish stance underlines its dedication to maintaining price stability while ensuring the continued growth of the Indian economy.
