RBI Keeps Repo Rate Unchanged at 6.5% for Eighth Consecutive Time

The Reserve Bank of India-led Monetary Policy Committee (MPC) decided to keep policy rates steady at 6.5% for the eighth time in a row on Friday. The committee reaffirmed its commitment to the 4% medium-term inflation target, even as the balance between inflation and growth becomes more favorable.

Out of the six members of the MPC, four voted to maintain the policy repurchase rate at 6.5% and the current stance of withdrawing accommodation. Previously, up until April, only one member had opposed the status quo on rates and policy stance.

The last time the RBI raised the repo rate was in February 2023, bringing it to 6.5%, and it has remained unchanged since then. The MPC's latest three-day bi-monthly meeting started on June 5, following the announcement of the 2024 Lok Sabha Election results.

Growth and Inflation

The committee revised its growth projection for the fiscal year 2025 (FY25), increasing it to 7.2% from the earlier estimate of 7%. In FY24, the Indian economy grew robustly at 8.2%, supported by a strong January-March quarter growth of 7.8%, according to the latest official data.

RBI GDP Forecast

The quarterly forecast for growth was upgraded as well, with Q1, Q2 and Q3 now expected to grow at 7.3 per cent, 7.2 per cent and 7.3 per cent respectively.

The RBI kept its retail inflation forecast steady, expecting it to average 4.5% for the fiscal year ending March 2025. Quarterly estimates were set at 4.9% for Q1, 3.8% for Q2, 4.6% for Q3, and 4.5% for Q4. Governor Das mentioned that the risks are evenly balanced.

RBI Inflation Forecast

Annual retail inflation slightly eased to 4.83% in April from 4.85% in March but remained above the MPC's target. Governor Das emphasized that the MPC’s decisions would not be influenced by the US Federal Reserve’s policies but would be based on the domestic economic outlook.

"While we do keep an eye on global developments, our actions are dictated by local economic conditions. We focus on the domestic growth and inflation outlook," he said.

Das also reiterated that the committee would be agile in managing banking system liquidity.

Market Expectations

Market analysts had anticipated that the RBI Governor-led six-member MPC would keep the benchmark repo rate unchanged at 6.5% and maintain its stance of ‘withdrawal of accommodation’.

Ahead of the RBI monetary policy announcement, the Indian stock market indices, Sensex and Nifty 50, opened flat on Friday. Analysts predicted that the RBI policy would likely be a ‘non-event’ for the markets, expecting no changes to the repo rate.

In conclusion, the RBI’s steady approach to the repo rate reflects its focus on balancing growth and inflation, prioritizing domestic economic conditions over external factors. The unchanged stance provides a stable foundation for the Indian economy as it navigates future challenges.