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Published: October 7, 2023
Updated: October 7, 2023

RBI Holds Repo Rate Steady at 6.5% in Fourth Consecutive Pause

The Reserve Bank of India's (RBI) monetary policy committee (MPC) announced its decision to maintain the repo rate at 6.5 percent for the fourth consecutive time. RBI Governor Shaktikanta Das shared this unanimous decision, emphasising the central bank's focus on withdrawing accommodation. This article delves into the details of the MPC's decision and its implications.

The Repo Rate Pause:

In a significant move, the MPC decided to extend the pause on the repo rate hike, marking the fourth consecutive decision to keep it at 6.5 percent. This decision follows a cumulative increase of 250 basis points since May 2022, with the initial pause occurring in April.

India: The New Growth Engine:

Governor Das expressed confidence in India's potential as the "new growth engine of the world." Despite global economic challenges, the RBI remains committed to fostering macroeconomic stability and growth within the country.

Inflation Concerns:

High inflation has been identified as a critical risk to India's economic stability and growth. While retail inflation soared to a 15-month high of 7.44 percent in July, a subsequent drop in the prices of agricultural commodities provided some relief. However, the MPC remains cautious, particularly regarding the impact of kharif sowing on future inflation.

Inflation Projections:

For fiscal year 2023-24 (FY24), the RBI retained its CPI-based inflation forecast at 5.4 percent. Projections for specific quarters indicate a nuanced outlook, with Q2FY24 revised from 6.2 percent to 6.4 percent, Q3FY24 lowered to 5.6 percent from 5.7 percent, and Q4FY24 remaining at 5.2 percent. Q1FY25 is also expected to see inflation at 5.2 percent.

Steady GDP Forecast:

Governor Das reaffirmed the RBI's GDP forecast for FY24 at 6.5 percent. This consistency in projection reflects the central bank's commitment to supporting economic growth while managing inflationary pressures.

The RBI's decision to maintain the repo rate at 6.5 percent underscores its dedication to managing inflation and fostering sustainable economic growth. With India poised to become a global growth engine, the central bank remains vigilant in ensuring macroeconomic stability.