RBI MPC holds fire and keeps repo rate unchanged; inflation forecast raised

- The Governor Shaktikanta Das-led committee has kept the repo rate unchanged at 6.5%.
- MPC has also maintained its policy stance at “withdrawal of accommodation”.
- The RBI has, however, upped its inflation projection considering the recent CPI readings.

The Reserve Bank of India's Monetary Policy Committee (MPC) has decided to hold fire and maintain the status quo on rates, which is in line with economist and market expectations. After holding a three-day meeting, the Governor Shaktikanta Das-led committee has unanimously kept the repo rate unchanged at 6.5%. Subsequently, the Standing Deposit Facility (SDF) stands at 6.25%.

The RBI has, however, upped its inflation projection considering the recent CPI readings. The forecast now stands at 5.4% for the financial year 2023-24. In its last policy in June, the Indian central bank had lowered its inflation forecast for FY23-24 to 5.1% from 5.2%.

“Bringing headline inflation in the tolerance band is not enough – need to be firmly focussed on bringing inflation to 4%. We have to keep an Arjuna’s eye in deploying monetary instruments,” said Das.



While addressing inflation, Das said that global food prices have hardened on renewed geopolitical tensions. There is a silver lining domestically though. The RBI Governor said that vegetable prices may see a significant correction in the next few months but, "uncertainties may remain in domestic food price outlook".

The MPC has not changed its Indian growth (GDP) projection for the current financial year at 6.5%.

The Indian economy has an air of cautious optimism. If the vegetable prices have spiked there has been a moderation in fuel and core inflation readings. Moreover, most economists believe that the food inflation is transitory or seasonal.

The MPC has also maintained its policy stance (5 out of 6 committee members in favour) at “withdrawal of accommodation”. An accommodative stance means the central bank is prepared to expand the money supply to boost economic growth. Policy stances are namely Dovish, Hawkish, and Accommodative and Neutral.

The rate decision comes at a time when the global economic waters have been choppy and giving out mixed signals. While The Bank of England and European Central Bank and The United States Federal Reserve have raised their benchmark interest rates in July end, the Chinese and Brazilian counterparts have started cutting rates as well.

The MPC decisions are in line with economist expectations. "The possibility of a rate cut during the fiscal year has been pushed out, which will have a temporary negative impact on bond prices. We can expect a rate cut 2nd quarter of next financial year," said Mahesh Agarwal, National Head- Wealth at AUM Capital.

“There are no new major headwinds to growth projections. Stronger than expected momentum in domestic investments resulted in major international agencies like IMF revising up India's growth projections to 6.1% from 5.9% earlier this year. We expect RBI to maintain its growth projections at 6.5% for FY24,” a report by CARE Edge had said before the policy.