RBI keeps repo rate unchanged at 6.5 per cent, core inflation remains 'sticky'

Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) will not hesitate to take action in the future.

RBI Governor Shaktikanta Das. (Photo | PTI)

MUMBAI: The Reserve Bank of India on Thursday hit the pause button and decided to keep key benchmark policy rate at 6.5 per cent even as inflation is trending above its tolerance level.

The rate hike has been paused after six consecutive rate increases aggregating to 250 basis points since May 2022.

Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) will not hesitate to take action in the future.

While keeping the interest rate intact, Das said core inflation remains sticky. Core inflation generally refers to inflation in manufactured goods.

Retail inflation in February stood at 6.44 per cent compared to 6.52 per cent in the previous month.

MPC takes into account retail inflation numbers for setting interest rates. However, inflation is expected to moderate in the current fiscal.

Many institutions, including the World Bank and Asian Development Bank, have predicted that inflation would cool down to about 5 per cent this financial year.

For the next fiscal, RBI projected a growth rate of 6.5 per cent as compared to the 6.4 per cent estimated in February. In the latest Economic Survey of the finance ministry, growth was projected at 6-6.8 per cent for 2023-24.

Last month, the US Federal Reserve announced another 25 basis points interest rate hike to tame inflation. With the hike, the Fed has increased the federal funds rate from nearly zero in March 2022 to a range of 4.75-5 per cent.

The European Central Bank and Bank of England have also hiked their benchmark rates.

Key takeaways:

• Repo rate kept unchanged at 6.5 per cent
• Inflation for FY24 projected at 5.2 per cent, 5.1 per cent in Q1, Core inflation remains sticky
• Economy expected to grow 7 per cent in FY23
• GDP growth projection for FY24 raised to 6.5 per cent from earlier estimate of 6.4 per cent
• CAD to remain moderate in Q4 FY23 and also in current fiscal year
• Centralised portal to be set up to search across multiple banks for unclaimed deposits
• Operation of pre-sanctioned credit lines at banks permitted to expand footprint of UPI

What the RBI Governor said:

• MPC won't hesitate to take any action in future on rate hike
• Global economy facing renewed phase of turbulence
• Witnessing unprecedented uncertainties in geopolitics and economy
• Global economy facing financial challenges in wake of recent bank failures
• Keeping close watch on turmoil in banking sector in developed countries
• RBI to remain focused on withdrawal of monetary policy accommodation
• Banking and non-banking financial system remains healthy
• Policy decisions taken since May 2022 are still working through the system
• Current financial year points towards softening of inflation
• War against inflation to continue until there is durable decline
• Indian Rupee moved in orderly manner in FY23, RBI to remain watchful
• RBI to maintain agile approach for liquidity management 
• RBI to manage govt borrowing programme in non-disruptive manner
• GCC countries to remain main source of remittances
• Inward remittances touch all-time high of USD 107.2 billion in 2022
• Vigilant and ready to face challenges with firm commitment to price and financial stability

READ MORE:

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Inflation haunts common man

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Retail inflation for industrial workers remains flat at 6.16 per cent in Feb