RBI Monetary Policy: On Friday, RBI Governor Shaktikanta Das made an announcement that the Monetary Policy Committee (MPC) has reached a unanimous decision to maintain the policy repo rate at 6.50 percent.
Repo rate remains unchanged
This marks the fourth consecutive instance where the MPC has opted to maintain the benchmark repo rate at its current level. Prior to this, the committee had increased the repo rate by 250 basis points from May of the previous year until April 2023. Governor Das explained that the central bank’s committee, with a majority of 5:1, has chosen to uphold its stance of withdrawing accommodation to ensure that retail inflation remains in line with the 4 percent target.
While speaking about the policy, Governor Das said, “After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, RBI’s Monetary Policy Committee decided unanimously to keep the Policy Repo Rate unchanged at 6.5 per cent.”
He further added, “Macroeconomic stability and inclusive growth are the fundamental principles underlying our country’s progress. The policy mix that we have pursued during recent years of multiple and unparalleled shocks has fostered macroeconomic and financial stability.”
Inflation likely to reduce
The central government has entrusted the RBI with the responsibility of maintaining consumer price index (CPI)-based inflation at 4 percent, with a permissible range of 2 percent on either side. In August, India’s retail inflation dropped to 6.83 percent from a 15-month peak of 7.44 percent in July. Nevertheless, the consumer price index has persistently stayed above the upper limit of the RBI’s tolerance range. This occurrence marks the fourth instance this calendar year and the seventh since August 2022.
Governor Das of the RBI mentioned that there is a likelihood of a decrease in retail inflation for September, although a decline in kharif (monsoon) sowing could pose a potential threat to this decline.
Predictions for the financial year
For the fiscal year 2023-24 (FY24), the RBI has maintained its CPI-based inflation forecast at 5.4 percent. However, the projections for specific quarters have been adjusted: Q2FY24’s forecast has been raised from 6.2 percent to 6.4 percent, while Q3’s projection has been reduced to 5.6 percent from 5.7 percent, and Q4’s projection remains at 5.2 percent.
Additionally, for Q1FY25, the RBI has maintained the inflation projection at 5.2 percent. Furthermore, the RBI has retained the real gross domestic product (GDP) forecast for FY24 at 6.5 percent, as stated by Shaktikanta Das.
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