RBI holds policy rates, stance unchanged over inflation concerns

'Imperative for monetary policy to actively pursue disinflation to anchor inflation expectations,' says Shaktikanta Das

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) on Thursday kept the repo rate unchanged at 6.50 per cent for the sixth consecutive policy review. It maintained the policy stance of "withdrawal of accommodation".

RBI governor Shaktikanta Das, in his policy announcement, said the MPC remains committed to aligning inflation with its target. “The MPC will vigilantly monitor any signs of food price pressures spreading to non-food items, as this could erode the progress made in easing core inflation. Given the necessity of maintaining the disinflationary trajectory, the MPC has opted to maintain the policy repo rate at 6.50 per cent for this meeting.

“It underscores the imperative for monetary policy to actively pursue disinflation to anchor inflation expectations and ensure effective transmission mechanisms. The MPC remains steadfast in its commitment to aligning inflation with the target. Additionally, the MPC will continue to focus on withdrawing accommodation gradually to facilitate a progressive alignment of inflation with the target while supporting economic growth,” said Das.

Also Read: RBI MPC: Repo rate kept at 6.5%; Q4FY24 inflation forecast lowered to 5%

Madhavi Arora, lead economist at Emkay Global Financial Services, said: "Expectedly, there was no change in the stance of 'withdrawal of accommodation'. We understand the RBI would be biased towards keeping overnight rates more aligned with the repo rate than with the Marginal Standing Facility (MSF)/Standing Deposit Facility (SDF) going forward. A part of this alignment is expected to be achieved naturally.”

“Our estimates suggest that the system liquidity deficit is likely to ease to 0.5-0.8 per cent of Net Demand and Time Liabilities (NDTL) in the coming months versus 1.1-1.2 per cent of NDTL in January 2024, helped by the government's cash drawdown, among other factors. A stance change, thus, may wait until April or even later, giving the RBI some elbow room to understand and adjust to fluid global dynamics," she said.