For the ninth time in a row, the RBI maintained the key policy repo rate at 6.5% on Thursday, continuing to strike a compromise between boosting economic development and containing inflation.
According to RBI Governor Shaktikanta Das, the Monetary Policy Committee voted by a 4:2 majority to maintain the current repo rate despite the fact that inflation has surpassed 5 percent and continues to be higher than the 4 percent target rate.
He claimed that because of “stubbornly” high food costs, inflation has increased to 5.1% in June after dropping to 4.8% in April and May.
Das clarified, “We have decided to continue with the disinflationary stance because growth cannot be sustained without price stability.”
The country’s inflation rate is anticipated to decline in the third quarter of the current fiscal year, according to the governor of the Reserve Bank of India.
Additionally, he stated that consistent urban consumption supports the robustness of domestic growth. The MPC came to the conclusion that maintaining monetary policy stability while closely observing inflation is essential. The committee stressed that in order to promote steady economic growth, inflation should continue to be the key priority.
Additionally, Das stated that there “is a convergence” between market expectations and the RBI’s monetary policy decision.
The “withdrawal of accommodation” policy stance has been decided to remain the RBI’s position. When monetary policy attempts to increase the amount of money in the financial system in order to promote economic expansion and job creation, it is referred to as “accommodative” policy.
The governor of the RBI added that while medium-term global growth confronts major hurdles, inflation is gradually declining across nations. In spite of this, the domestic economy is nevertheless strong, with manufacturing expanding as a result of rising demand.
The repo rate was increased to 6.5% in February 2023, the last time the RBI had adjusted rates. Between May 2022 and February 2023, the RBI hiked rates by 2.5 percent; following this, they were maintained on hold to sustain economic growth in the face of prior inflationary pressures.
The interest rate at which the RBI provides banks with short-term loans to help them meet their liquidity needs is known as the repo rate. This in turn affects how much bank loans to consumers and corporations cost.
A reduction in interest rates encourages investment and increases consumer spending, both of which boost economic expansion. But when the overall demand for goods and services rises, so does the inflation rate due to the increasing spending.
Although it decreased to 4.83 percent in April, the nation’s annual retail inflation rate is still higher than the RBI’s medium-term target rate of 4%.
Economists predict that the economy will develop at a strong 8.2 percent annual rate for 2023–2024, giving the RBI room to delay reducing interest rates until inflation reaches its desired level.
