RBI Monetary Policy: Repo rate remains unchanged at 6.5%

The Reserve Bank of India's (RBI) monetary policy committee (MPC) on Thursday unchanged at 6.5 percent in the first bi-monthly policy for the new financial year 2023-24 (FY24) to assess the steps taken so far and will keep monitoring the inflation scenario.  Reserve Bank governor Shaktikanta Das-headed MPC met on April 3, 5, and 6 for this review. 

The MPC voted unanimously to keep the repo rate unchanged.  It decided to take a pause after consecutive rate hikes in 6 previous policies.  

However, the Governor highlighted that the MPC’s decision to pause on repo rate is for this meeting only. The Central Bank has already increased the repo rate by a total of 250 basis points since May in a bid to contain inflation, though it has continued to remain above the RBI's comfort zone of 2-6 percent most of the time.

MPC will not hesitate to take further action as may be required in its further meetings. It is now necessary to evaluate the cumulative action of past rate hikes, he added.

Meanwhile, the MPC voted by a 5:6 majority to remain focussed on the ‘withdrawal of accommodation’ to ensure inflation aligns with the target while focussing on growth.

The standing deposit facility (SDF) will remain unchanged at 6.25 percent and the Marginal standing facility (MSF) and Bank Rates also unchanged at 6.75 percent.

The year 2023 began on a good note, said Das, however, now the global economy is facing a renewed phase of turbulence.

"While we have kept the policy rate unchanged, this decision was taken based on our assessment of the macroeconomic and financial conditions with reference to information available up to today. Our job is not yet finished and the war against inflation has to continue until we see a durable decline in inflation closer to the target," said Das.

Das pointed out that the effective rate hike has been 290 bps since May 2022. The outlook is tempered by financial stability concerns, however, amid volatility, the Indian financial sector remains healthy. Inflation is above the target, present policy rate can still be regarded as accommodative, said Das.

On currency, Shaktikanta Das said that the rupee has moved in an orderly manner in 2022 and continues to remain so in 2023. "We remain watchful and focussed on maintaining the stability of the Indian rupee," he stated.

He further pointed out that India's current account deficit for the first three-quarters of FY23 stood at 2.7 percent of GDP. India's current account deficit is expected to remain moderate in the fourth quarter of FY23 and also in FY24 at a level, which is viable and eminently manageable, he added.

Forecasts

GDP: The RBI has raised its FY24 GDP growth forecast to 6.5 percent from 6.4 percent previously. Q1 and Q2 forecasts remain unchanged at 7.8 percent and 6.2 percent respectively while Q3 and Q4 projections are increased to 6.1 percent (6 percent earlier) and 5.9 percent (5.8 percent earlier), respectively.

Inflation: The FY24 inflation projection lowered to 5.2 percent from 5.3 percent previously. Q1 forecast raised to 5.1 percent from 5 percent previously while Q2 and Q3 CPI forecast retained at 5.4 percent each. Finally, Q4 CPI forecast has been lowered to 5.2 percent from 5.6 percent previously.

The CPI has risen since December 2022, core inflation remains elevated. Headline inflation is expected to moderate in 2023-2024. MPC will not hesitate to take further action in future meets, warned Das.