MUMBAI – The Reserve Bank of India on Thursday left the repo rate unchanged at 6.50% following the conclusion of its three-day monetary policy meeting. This is the sixth consecutive time the central bank has left policy rates untouched.
The Monetary Policy Committee of the central bank also retained its stance of remaining focussed on the “withdrawal of accommodation.”
Despite the monetary policy action being on expected lines, the equity market tumbled. Sensex lost over 700 points while Nifty slipped below the 21,750 mark.
Unlike in the previous meeting, the decision to leave rates unchanged this time was favoured by 5 of the 6-member MPC panel.
“These decisions are in consonance with the objective of achieving the medium term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” RBI said in its policy statement.
Inflation
Globally, inflation is edging down from multi-decade highs, with intermittent upticks. In India, headline inflation has seen some volatility, primarily due to food prices, even though core inflation has softened to a four-year low.
“Going forward, the inflation trajectory would be shaped by the evolving food inflation outlook,” RBI said.
The central bank has left its headline CPI inflation projection for FY24 unchanged at 5.4%. For FY25, it expects inflation to ease to 4.5%.
“The usual seasonal correction in vegetable prices is continuing, though unevenly. Yet considerable uncertainty prevails on the food price outlook from the possibility of adverse weather events. Effective supply-side responses may keep food price pressures under check,” RBI said.
Growth
While vigilance on inflation remains at the core of the monetary policy assessment of the RBI, the central bank has drawn comfort on the growth front.
On the domestic front, economic activity is strengthening, with manufacturing and services sectors being the key drivers.
Meanwhile, global growth is likely to remain steady in 2024 after a surprisingly resilient performance in a turbulent year, while inflation is edging down from multi-decade highs, with intermittent upticks.
With a pick-up in government spending and expected recovery in private sector investments, the RBI has projected GDP growth for FY25 at 7%, and if that’s achieved, it will mark the fourth consecutive year of growth above 7% for the Indian economy.
“The MPC noted that domestic economic activity is holding up well and is expected to be backed by the momentum in investment demand, optimistic business sentiments and rising consumer confidence,” the central bank said.
