Economy: RBI retains repo rate at 6.5%, raises growth outlook in FY24

Virendra Pandit 

New Delhi: After raising the repo rate by 250 basis points since May 2022, the Monetary Policy Committee (MPC) of the RBI on Thursday pressed the pause button, a surprise move Governor Shaktikanta Das said should not be seen as an indicator of carrying out similar moves in the future.

“The RBI will not hesitate in taking further action on rates if needed,” he said.

“If I have to characterize today’s monetary policy in just one line…it’s a pause, not a pivot,” he told reporters after the policy review announcement.

Earlier in the day, the six-member MPC unanimously decided to pause after repeated hikes in rate over the last 11 months, surprising those who expected the central bank to make a final 25 basis points hike before pausing. The benchmark policy rate (repo rate) remains at 6.5 percent.

Das said the job of decisively bringing down inflation is “not yet finished,” and RBI’s policy priority continues to be price stability.

In a statement, Das pledged to hike the interest rate again if needed, saying the decision to pause was “for this meeting only.”

He reminded that the RBI’s target is to bring down headline inflation from the 6 percent level at present to 4 percent, and the monetary policy will be working towards progressively aligning with the target.

Deputy Governor Michael Patra said RBI has marginally upped its FY24 growth estimate to 6.5 percent primarily on the assumption of a decline in the average oil price to USD 85 per barrel from USD 90 per barrel earlier.

The following are the other highlights of RBI’s monetary policy statement:

• RBI raises economic growth projection from 6.4 percent in February to 6.5 percent for FY24;
• Inflation is to be 5.2 percent in 2023-24, against 5.3 percent estimated in February;

• Fight against inflation far from over, inflation outlook dynamic amid the sudden announcement of crude output cut by OPEC+ countries recently;
• The war against inflation has to continue until RBI sees a durable decline in inflation closer to the target;
• Expectations of a record Rabi harvest bode well for easing food price pressures, milk prices are likely to remain firm going into the summer season due to tight demand-supply balance and fodder cost pressures;
• Protracted geopolitical tensions and global financial market volatility pose downside risks to the growth outlook;
• Witnessing unprecedented uncertainties in geopolitics and economy;
• Global economy confronted with severe financial stability challenges in wake of recent banking sector developments in advanced countries;
• Regulators need to identify potential vulnerabilities and take proactive regulatory and supervisory measures;
• Institutions should exercise due diligence in risk management, and corporate governance practices; pay close attention to asset-liability mismatches and build up adequate capital buffers;
• RBI keeping a close watch on the banking sector turmoil in some developed countries;
• RBI to set up a centralized portal for the public to search unclaimed deposits in multiple banks;
• Indian Rupee moved in an orderly manner in 2022 and continues to be so in 2023; RBI remains watchful on maintaining stability;
• CAD is to remain moderate in Q4FY23 and in FY24 at a level that is both viable and eminently manageable.