RBI maintains status quo in policy rate for 5th time now
The Monetary Policy Committee of the Reserve Bank of India (RBI) in its December review meeting unanimously decided to keep the policy repo rate unchanged at 6.5 per cent, thus maintaining status quo for the fifth straight time.
Deliberating the policy statement on Friday morning, RBI Governor Shaktikanta Das attributed declining inflation as reason behind maintain status quo the policy stance.
Retail inflation in India continued to ease through October, supported by a relative decline in some of the sub-indexes. The October consumer price index (CPI) came at a four-month low of 4.87 per cent against 5.02 per cent the previous month. Retail inflation in India though, is in RBI’s 2-6 per cent comfort level but is above the ideal 4 per cent scenario.
Das said the MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
Das’ remarks also found mention of firm GDP growth in the second quarter.
The Indian economy grew 7.6 per cent during the July-September quarter of the current financial year 2023-24, remaining the fastest-growing major economy. India’s GDP growth for the April-June quarter grew 7.8 per cent.
The three-day bi-monthly monetary policy committee (MPC) meeting of the RBI began on Wednesday. The RBI typically conducts six bimonthly meetings in a financial year, where it deliberates interest rates, money supply, inflation outlook, and various macroeconomic indicators.
For the fourth straight occasion, the monetary policy committee, through its October review meeting, unanimously decided to keep the policy repo rate unchanged at 6.5 per cent, thus maintaining the status quo.
In its past four meetings, it held the repo rate unchanged at 6.5 per cent. The repo rate is the rate of interest at which RBI lends to other banks.
A relative decline in inflation, barring the latest spike, and its potential for further decline may have prompted the central bank to put the brake on the key interest rate. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well.
Barring the latest pauses, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
