RBI MPC holds interest rate as expected but stance maintained at ‘withdrawal of accommodation’
- The RBI has kept its growth projection for the current financial year unchanged at 6.5%
- “We will keep Arjuna’s eye on inflation,” says Governor Das
- RBI MPC votes in favor of maintaining the ‘withdrawal of accommodation’ stance looking at the global macro economic situation.
AdvertisementThe Reserve Bank of India Monetary Policy Committee in its June policy has decided to hold the repo rate, or the lending rate of the central bank, at 6.5%. This is the second straight policy in which rate has been held showing that the rate hike cycle is now truly over. Consequently, the bank rate and the Marginal Standing Facility (MSF) rate has been kept unchanged at 6.75%
RBI Governor Shaktikanta Das also said that the MPC voted in favour (5 out of 6 members) of holding its policy stance at “withdrawal of accommodation”. The market was speculating whether the stance would see a positive change but Das highlighted that inflation still remains above the 4% target and is expected to stay so till the year end.
“Being in the inflation tolerance band is not enough. Our goal is to bring inflation to 4%,” said Das in this announcement.
It is noteworthy that the pause in rate hike comes after the benchmark rate was hiked by 250 basis points since May 2022 and a breather was only taken in the April policy this year.
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The RBI has kept its growth projection for the current financial year (FY24) unchanged at 6.5%. This comes at the backdrop of the World Bank revising India’s GDP forecast downwards by 30 bps earlier in the week.
The Indian economy and financial sector stand out as strong and resilient, and domestic macroeconomic fundamentals are strengthening. Rural demand is on a revival path,” said Das adding, “GDP growth in 2022-23 turned out to be stronger than anticipated and is holding up well. Highlights financial stability concerns, impact of rate hikes.”
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RBI has trimmed its current financial year (FY24) inflation projection by 10 bps to 5.1%.
Advertisement“We will keep Arjuna’s eye on inflation,” said Das, making it very clear that the central bank has inflation control as its top priority. He added, “MPC will remain vigilant and will take further policy action as and when required to keep inflation expectations anchored and bring inflation down to 4%”
Economists had more or less predicted a status quo policy and continue to believe that rate hikes are over for this year.
Suvodeep Rakshit, senior economist, Kotak Institutional Equities said after the policy, "We believe there are some downside risks to growth. We believe that rate cuts will be contingent on significant divergence in growth-inflation prospects. We maintain our call that the RBI will be on an extended pause."
According to Indranil Pan, Chief Economist, Yes Bank, the upside surprise seen in the latest released GDP numbers Q4FY23 show that the economy is resilient even as private consumption expenditure remains on the slow track.
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