RBI Monetary Policy: Central Bank Keeps Repo Rate Unchanged, GDP Growth Forecast Retained At 6.5% For FY24

CPI inflation is still above our 4 per cent target and will remain above it in 2023-24 as per our forecasts, the governor announced

The Reserve Bank of India’s (RBI's) Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, on Thursday announced to keep policy rate unchanged at 6.5 per cent. This was second time in a row that the RBI opted for a pause in rate hike. The central bank has retained growth projection at 6.5 per cent for FY24, expects 8 per cent growth in Q1, 6.5 per cent in Q2, 6 per cent in Q3, while 5.7 per cent in Q4. "Domestic demand condition remains supportive of growth, while rural demand on revival path," he said.

During his address, the governor said the domestic demand conditions remain supportive of growth. "Urban demand remains resilient, while rural demand is on a revival path. And fixed investment by manufacturing companies expanded in 2022-23. Consumer and business outlook surveys display continued optimism." This is the third time in 2023 that the MPC announced its monetary policy decision.

On inflation, he said the pace of monetary tightening has slowed down but uncertainty remains as inflation is above target across the world. "CPI inflation is still above our 4 per cent target and will remain above it in 2023-24 as per our forecasts," he pointed out. A durable disinflation in core inflation would be critical for a sustained alignment of the headline inflation with the target. CPI inflation forecast for 2023-24 cut to 5.1 per cent from 5.2 per cent.

As per the RBI's MPC announcement, CPI inflation forecast for April-June 2023 cut to 4.6 per cent from 5.1 per cent. The RBI's forecast for CPI inflation for July-September 2023 cut to 5.2 per cent from 5.4 per cent, for October-December 2023 retained at 5.4 per cent, while for January-March 2024 the CPI inflation retained at 5.2 per cent.

Das mentioned that the Standing Deposit Facility (SDF) rate remains at 6.25 per cent, while Marginal Standing Facility Rate and Bank Rate also unchanged at 6.75 per cent. "MPC voted 5 members to 1 to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target," he said. 

He said the Indian economy stand strong and resilient and forex reserves are at comfortable levels. "Indian rupee has remained stable since January 2023. Foreign exchange reserves stood at $595.1 billion as on June 2," the governor said.

According to the MPC outcome, India's current account deficit is expected to have moderated further and should be eminently manageable in 2023-24. "The RBI will remain nimble in its liquidity management. The central bank will ensure orderly completion of the government’s borrowing programme," Shaktikanta Das noted.

He said India's domestic demand condition remains supportive of growth while rural demand is on revival path. 

During the previous MPC meeting in April, the central bank decided to pause its rate hike cycle and retain the repo rate at 6.5 per cent. Prior to this, the RBI had hiked the repo rate by a cumulative 250 basis points since May 2022 in an effort to curb inflation.

According to a Bloomberg poll by 40 economists, the forecast was that the RBI would keep the repurchase rate unchanged at 6.50 per cent, signalling that inflation could cool further in the months ahead.

The MPC's meeting took place against the backdrop of a decline in consumer price-based (CPI) inflation, which reached an 18-month low of 4.7 per cent in April. The CPI data for May is scheduled to be announced on June 12.