The Reserve Bank of India’s monetary policy committee (MPC) has decided to maintain the status quo on the key policy repo rate at 6.5% in its second policy statement of the financial year 2023-24.
The MPC, which began its meeting on June 6, 2023, also decided to keep the marginal standing facility and bank rates unchanged at 6.75% while the standing deposit facility rate has been pegged at 6.25%, says RBI governor Shaktikanta Das.
The MPC's policy stance remains focussed on "withdrawal of accommodation" to ensure that inflation progressively aligns with the target while supporting growth, Das says.
While announcing the policy decision, the RBI governor says the Indian economy and its financial sector remain resilient and macro-economic fundamentals are also strong as the rural demand is on the recovery path.
He adds that inflation can also be easing across all categories and there are expectations of better kharif crops on the back of normal monsoon forecast.
In the last policy meeting in April, the RBI’s MPC unanimously favoured a pause in rate hikes, keeping the key repo rate unchanged at 6.50%. The repo rates are already up 250 bps from the lows of May 2022 and a full 135 bps higher than the pre-pandemic repo rate of 5.15%.
Country-wise central bank rate action data also indicates that out of 147 countries, 95 economies paused their rates in the latest policy and the policy rate increased in only 43 countries.
The Reserve Bank's MPC also thinks the headline inflation is expected to remain above 4% throughout FY 2023-24.
The RBI Governor had earlier said taking a pause on the repo rate depends on the situation on the ground. “I am driven by what’s happening on the ground, what is the outlook, what are the trends, how is the inflation build-up."
“The global economy is facing headwinds from the lingering geopolitical conflict, elevated inflationary pressures from across countries, and tighter financial conditions on the back of monetary policy tightening by major central banks across the world,” Das had added.
According to the Reserve Bank of India estimates, the economic growth for the first two quarters will increase, and it has cut the estimates for the last two quarters of the fiscal year. The country's gross domestic product (GDP) is estimated to grow at 6.5% in 2023-24, with real GDP in Q1 forecast to grow at 8%, Q2 at 6.5%, Q3 at 6% and Q4 at 5.7%.