RBI keeps policy repo rate unchanged at 6.5% with focus on inflation

The Monetary Policy Committee (MPC) of the Reserve Bank of India, at its meeting on Wednesday, decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent.

RBI said the decision has been taken after an assessment of the current and evolving macroeconomic situation in the country.

Accordingly, the standing deposit facility (SDF) rate has been kept unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.

The MPC has taken a neutral stance in its monetary policy while remaining focused on a durable alignment of inflation with the target, while supporting growth, RBI stated.

The realignment of inflation by taking off the food prices index, although, has not many takers. 

RBI said the decision to keep repo rate unchanged is 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 noted that the global economy has shown resilience and is expected to remain over the rest of the year, adding that downside risks from intensifying geopolitical conflicts remain. 

On the domestic front, real gross domestic product (GDP) registered a growth of 6.7 per cent in Q1 of 2024-25, on the back of higher private consumption and investment. RBI expects the agriculture sector to perform well with above normal rainfall and robust reservoir levels. Manufacturing and services activities are also expected to remain steady, according to RBI.

Healthy kharif season and sustained momentum in consumer spending in the festival season would augur well for private consumption. This, in turn would help improve consumer and business confidence, RBI noted.

While resilient non-food bank credit growth, elevated capacity utilization, healthy balance sheets of banks and corporates, and the government’s continued thrust on infrastructure spending will support investment outlook, RBI said, external demand will get support from improving global trade volumes. 

RBI has projected real GDP growth in India for 2024-25 at 7.2 per cent with Q2 at 7.0 per cent, Q3 at 7.4 per cent, and Q4 at 7.4 per cent. 

Real GDP growth for Q1 2025-26 is projected at 7.3 per cent. 

According to RBI, headline inflation declined sharply to 3.6 and 3.7 per cent in July and August, respectively, from 5.1 per cent in June. 

However, inflation is expected to pick up momentum in September because of adverse base effects and a likely rise in food prices. RBI expects food price inflation to ease by the fourth quarter of the current fiscal, ie, January-March 2025.

On the basis of opinion polls and own calculations, RBI has projected consumer price inflation in India at 4.5 per cent for 2024-25 (Q2 at 4.1 per cent, Q3 at 4.8 per cent and Q4 at 4.2 per cent). CPI inflation for Q1 of the next fiscal (2025-26) is projected at 4.3 per cent.