Key Takeaways
- The RBI maintained the repo rate at 6.50% for the 10th consecutive time.
- The central bank shifted its stance to neutral, allowing for flexibility in interest rates.
- The RBI aims to keep inflation at 4% target, with a focus on durable alignment with target.
New Delhi: The Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) on Wednesday decided to keep the policy repo rate unchanged at 6.50% for the 10th consecutive time while shifting stance to ‘neutral’.
A neutral stance means the central bank can either increase or decrease interest rate depending on inflation or macroeconomic trends unlike the previous ‘withdrawal of accommodation’ stance which kept the option of a rate cut off the table to check inflationary price trends.
Retail inflation is one of the most important factors which are considered by the RBI while determining the key lending rate.
“The Monetary Policy Committee (MPC) met on 7th, 8th and 9th October and after assessing the evolving macroeconomic and financial conditions and the outlook, the MPC decided by a majority of 5 out of 6 members to keep the policy repo rate unchanged at 6.50%,” said RBI Governor Shaktikanta Das after the bi-monthly monetary policy review meeting.
Consequently, the standing deposit facility (SDF) rate remains at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.
“The MPC decided unanimously to change the stance to neutral and to remain unambiguously focussed on a durable alignment of inflation with the target while supporting growth,” the RBI Governor said.
The MPC noted that currently the macroeconomic parameters of inflation and growth are well balanced. It said that headline inflation is on a downward trajectory though its pace has been slow and uneven.
“Going forward, the moderation in headline inflation is expected to reverse in September and likely to remain elevated in the near term due to adverse base effects among other factors. Food inflation pressures could see some easing later in the financial year on the back of strong Kharif sowing, adequate buffer stocks and good soil moisture conditions which are conducive for Rabi sowing.
Adverse weather events continue to pose contingent risks to food inflation. Core inflation on the other hand appears to have bottomed out. Fuel component of the CPI (consumer price index) remains in contraction,” the RBI Governor said.
He stated that domestic growth has sustained its momentum with private consumption and investment growing in tandem. Further he said that resilient growth provides the space to focus on inflation so as to enable its durable descent to 4% target.
“In these circumstances the MPC decided to remain watchful of the evolving outlook in the coming months. Keeping in view the prevailing inflation and growth conditions and the outlook, the MPC considered it appropriate to change the stance to neutral and to remain unambiguously focussed on durable alignment of inflation with the target while supporting growth,” Das said.
The RBI has projected the FY25 gross domestic product (GDP) growth rate at 7.2% while retail inflation is seen at 4.5% in the current financial year.
