RBI’s MPC keeps repo rate 'unchanged' at 6.5%; inflation outlook at 5.4%

The Reserve Bank of India (RBI), in its fourth bi-monthly monetary policy announcement today, kept the key repo rate “unchanged” at 6.50%, while also maintaining the status quo on the "withdrawal of accommodation" stance in order to keep the liquidity tight.

The MPC has maintained the "status quo" on the key policy rate for the fourth consecutive time, with 5 of 6 MPC members voting in its favour. The rate-setting panel had kept the key lending rate "unchanged" at 6.5% in August 2023. Following the rate hike pause in April this year, the MPC kept it "unchanged" in June 2023 as well.

Moreover, the marginal standing facility (MSF) and bank rates have also been kept "unchanged" at current levels of 6.75% this time.

Announcing the MPC decisions today, RBI Governor Shaktikanta Das says the country is focussed on two key factors – macroeconomic stability and fundamental growth. "For India, the external sector remains manageable. India is poised to become the new growth engine of the world," he adds.

The current MPC decision is in line with analysts' estimates of a "prolonged pause" as the "seasonality of inflation" tapers.

Das says the MPC has decided to maintain the inflation outlook at 5.4% for FY24. He adds the overall inflation outlook is clouded by uncertainty due to a fall in kharif sowing, volatile global food and energy prices, and lower reservoir levels. "Global headline inflation could remain high for a longer period than estimated," he adds.

While the latest inflation data for September 2023 is yet to come out, retail inflation in August 2023 eased to 6.83% year-on-year from a 15-month peak of 7.44% in July. The headline inflation, measured by the Consumer Price Index (CPI), fell to 7.02% in rural areas in August from 7.63% in July, while urban inflation dropped to 6.59% from 7.20% in the previous month.

On GDP, too, the forecast has been kept unchanged at 6.5% for the fiscal year 2023-24. The GDP growth forecast for April-June 2023 retained at 8%. GDP growth forecast for July-September 2023 retained at 6.5%. GDP growth forecast for October-December 2023 retained at 6%. GDP growth forecast for January-March 2024 retained at 5.7%.

This is almost in line with the estimates of many financial organisations. The World Bank forecasts India's GDP to grow 6.3% during the current 2023-24, lower than the 7.2% growth it registered in FY23. US-based global ratings agency S&P Global Ratings also retained India's growth forecast in the financial year 2023-24 at 6, citing the slowing world economy, the delayed effect of rate hikes, and the rising risk of subnormal monsoons. However, the Organisation for Economic Cooperation and Development (OECD) has raised India’s GDP forecast for 2023-24 to 6.3% from 6% projected earlier.