MUMBAI: Fearing a spike in inflation during the second half of the fiscal year and forecasting stronger economic growth, the Monetary Policy Committee (MPC), chaired by Reserve Bank of India (RBI) governor Shaktikanta Das, on Friday, left the key policy rates unchanged at 6.5 percent for the eighth consecutive time.
The last time the rate-setting panel tweaked the repo rate was a 35 basis points (bps) hike in the February 2023 review, taking it to a decadal high. The status quo stance comes even as the European Central Bank delivered a 25 bps cut on Thursday and the US Fed may follow suit sooner rather than later.
Voting for the status quo, the six-member panel led by Das said while growth remains stronger and came in more than expected in the past fiscal, printing in at 8.2 percent, the latest macro indicators show the economy gathering further momentum, leading the panel to increase the growth forecast by 20 bps—one basis point is one hundredth of a percent—to 7.2 percent for the current fiscal.
In the April and February reviews, the forecast was 7 percent.
While the economy looks robust, the worry points are the food prices, forcing the panel to leave not only the rates unchanged but also continue with the stance of withdrawal of accommodation.
The RBI governor was categorical, saying controlling prices and ensuring descending inflation on a durable basis is the key objective of the MPC, even as it supports growth and financial stability.
However, the panel stopped short of hiking the inflation forecast for the year yet and maintained the 4.5 average rate for the year.
Das said that the panel's worry arises from the still-spiking food prices following the heatwave conditions and the impact of losing the base effect benefit from the third quarter while the first two quarters of the current fiscal year would continue to head south.
The government has mandated the RBI to ensure CPI inflation at 4 percent with a margin of 2 percent on either side.
Highlights of RBI's bi-monthly policy statement
Repo rate remains unchanged at 6.5% (last hike in February 2023)
Focus on withdrawal of accommodative monetary policy stance to bring down inflation
Growth projection for FY25 raised to 7.2% from 7%
Inflation forecast for FY25 retained at 4.5%
Food inflation still remains a concern
Current account deficit for FY25 expected to remain well within sustainable level
Foreign exchange reserves touch fresh high of $651.5 billion as on May 31, 2024
Bulk deposit threshold raised to Rs 3 crore from Rs 2 crore
Export and import regulations under FEMA to be rationalised
RBI to set up Digital Payments Intelligence Platform to harness advanced technologies to mitigate payment fraud risks
Auto replenishment of balance Fastag, NCMC, and UPI-Lite wallets brought under e-mandate framework
Next monetary policy announcement on August 8.
