RBI's monetary policy committee keeps repo rate unchanged at 6.5%

Monetary policy stance retained at 'withdrawal of accommodation' to aid the MPC's focus on bringing inflation towards the target

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Thursday kept the repo rate unchanged at 6.5 per cent for the ninth straight meeting, with a majority of 4-2. The MPC decided to keep its stance of "withdrawal of accommodation" unchanged.

Four out of six MPC members voted in favour of the rate decision, Reuters reported. “Headline inflation, after remaining steady at 4.8 per cent, climbed to 5.1 per cent in June. The expected moderation in inflation expected in Q2 (of the current financial year) due to base effects is expected to reverse in the third quarter… Ensuring price stability eventually leads to sustained growth,” said RBI Governor Shaktikanta Das in his monetary policy statement,

Forecast for India's economic growth in FY25 remains unchanged at 7.2 per cent, said the statement. However, the forecast for the first quarter was revised to 7.1 per cent from the earlier projection of 7.3 per cent. The MPC, in its previous meeting, had revised the growth forecast to 7.2 per cent from 7 per cent. The growth for the first quarter of the next financial year was projected at 7.2 per cent.

The MPC projected the inflation at 4.5 per cent for FY25 same as the previous projection.  On a quarterly basis, the inflation forecast was revised to Q2 at 4.4 per cent, Q3 at 4.7 per cent, and Q4 at 4.3 per cent, against the previous projections of Q2 at 3.8 per cent, Q3 at 4.6 per cent, and Q4 at 4.5 per cent. The inflation for the first quarter of the next financial year was projected at 4.4 per cent.

Das said that food inflation, which has a weight of 46 per cent in the headline inflation, cannot be ignored. High food prices likely continued in July, reflected in the revision in the inflation forecast for the second quarter of the current financial year.

As many as 10 respondents in a 'Business Standard' poll expected the MPC to maintain a status quo. The MPC last changed rates in February 2023, when the policy rate was raised to 6.50 per cent. The annual retail inflation rate rose for the first time in five months in June, climbing above 5 per cent on the back of a jump in food prices.