RBI Monetary Policy: Central Bank Keeps Repo Rate Unchanged At 6.5%, CPI Inflation Forecast Raised To 5.4%

RBI MPC Meeting Today: Standing Deposit Facility (SDF) rate also retained at 6.25 per cent, Governor Das reiterates commitment to 4 per cent inflation

Marginal Standing Facility rate and Bank Rate also retained at 6.75 per cent, Governor Shaktikanta Das said.

Source : Getty

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 third time in a row that the RBI opted for a pause in rate hike. During his address, Governor Das said that the MPC unanimously voted to leave the repo rate unchanged at 6.5 per cent.

He said the Standing Deposit Facility (SDF) rate also retained at 6.25 per cent. Marginal Standing Facility rate and Bank Rate also retained at 6.75 per cent. The MPC also decided to remain focused on withdrawal of accommodationwith preparedness to act should situation so warrant.

The governor said that the MPC voted in 5:1 majority to maintain 'withdrawal of accommodation' stance. Talking about inflation, he said that it is expected the inflation may surge in July-August because of vegetable prices. The RBI ups retail inflation projection to 5.4 per cent in FY24 from the earlier estimate of 5.1 per cent on higher vegetable prices. The MPC also remained resolute to align inflation to its 4 per cent target, he said. The MPC meeting took place against the backdrop of consumer price-based (CPI) inflation on some food items like tomato, wheat, and rice that have witnessed surge in price in the last few weeks.

The government has mandated the RBI to ensure CPI inflation at 4 per cent with a margin of 2 per cent on either side.

The GDP growth forecast for 2023-24 retained at 6.5 per cent. "The real GDP growth for the year 2023-24 is projected at 6.5 per cent with Q1 at 8 per cent, Q2 at 6.5 per cent, Q3 at 6 per cent, and Q4 at 5.7 per cent," the governor said during his address. The growth forecast for April-June 2023 retained at 8.0 per cent, for July-September 2023 retained at 6.5 per cent, for October-December 2023 retained at 6.0 per cent, for January-March 2024 retained at 5.7 per cent, while the growth forecast for April-June 2024 pegged at 6.6 per cent.

On Current Account Deficit (CAD), he said CAD to remain imminently manageable in current fiscal aided by services export and high inflow of remittances, adding that Indian rupee has remained stable since January 2023; forex reserves crosses $600 billion. India's net FDI declined to $5.5 billion during April-May period compared to $10.6 billion in corresponding period last year, the governor said.

Das in his statement said to enable conversational payments in UPI. "Introducing offline payments in UPI using near field tech via UPI Lite," he added. The central bank has raised the payment limit via UPI lite to Rs 500 from Rs 200.

The governor has proposed to put in place a transparent system for reset of interest rate on floating interest rate loans.

Anarock Group Chairman Anuj Puri said as widely anticipated, the RBI has decided to keep the repo rates unchanged at 6.5 per cent. India continues to outperform other countries in terms of consumption and with the festive season coming up, the RBI will not risk denting it. "This is nothing but good news for aspiring homebuyers on the market for a purchase in the near future. The unchanged repo rate will help maintain the momentum in housing sales - particularly in the mid and luxury segments, which did significantly well in H1 2023. As per ANAROCK Research, we saw total housing sales of about 2.29 lakh units across the top 7 cities in H1 2023, the highest half yearly sales in the last decade. However, the risk of inflation continues to lurk and if it rises further, there could be some repercussions on overall sales, especially in the cost-sensitive affordable housing segment which has already been severely impacted by the pandemic over the last couple of years." 

Kranthi Bathini from Wealthmills Securities said, "Investors remained cautious ahead of release of US CPI data, where a sequential pickup of 0.2 per  cent is expected both for headline print and core CPI. On YoY basis, headline data is expected at 3.3 per  cent  and core at 4.7 per  cent  in Jul'23. In Japan, PPI softened for the 7th straight month noting increase of 3.6 per  cent  compared to 4.3 per  cent  in Jun’23, on YoY basis. However, sequential momentum inched up slightly to 0.1 per  cent  compared to 0.1 per  cent  decline in Jun’23. Elsewhere, President Biden has imposed limits that would impact US investments in Chinese semiconductor firms. On domestic front, RBI maintains status quo, with cautionary tone on inflation."

After hiking the repo rate six consecutive times since May 2022 by 250 basis points to 6.5 per cent, the central bank has maintained a status quo in the last two MPC meetings.