For the fifth time in a row, the RBI keeps the policy rate unchanged
Mumbai Maharashtra December 8, India: At its December review meeting, the Reserve Bank of India’s (RBI) Monetary Policy Committee unanimously agreed to maintain the status quo at the policy repo rate of 6.5% for the fifth consecutive meeting.
RBI Governor Shaktikanta Das justified maintaining the status quo in policy by citing declining inflation during Friday morning’s policy statement deliberations.
Through October, India’s retail inflation rate decreased, helped by a relative decrease in a few sub-indices. The consumer price index (CPI) for October dropped from 5.02 percent in September to a four-month low of 4.87 percent. However, retail inflation in India is above the ideal range but still within the RBI’s comfort zone of 2–6% scenario.
Das said the MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
Das’ remarks also found mention of firm GDP growth in the second quarter.
The Indian economy grew 7.6 per cent during the July-September quarter of the current financial year 2023-24, remaining the fastest-growing major economy. India’s GDP growth for the April-June quarter grew 7.8 per cent.
The three-day bi-monthly monetary policy committee (MPC) meeting of the RBI began on Wednesday. The RBI typically conducts six bimonthly meetings in a financial year, where it deliberates interest rates, money supply, inflation outlook, and various macroeconomic indicators.
For the fourth straight occasion, the monetary policy committee, through its October review meeting, unanimously decided to keep the policy repo rate unchanged at 6.5 per cent, thus maintaining the status quo.
In its past four meetings, it held the repo rate unchanged at 6.5 per cent. The repo rate is the rate of interest at which RBI lends to other banks.
A relative decline in inflation, barring the latest spike, and its potential for further decline may have prompted the central bank to put the brake on the key interest rate. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well.
With the exception of the most recent pauses, the RBI has increased the repo rate to 6.5% from May 2022 by a total of 250 basis points in an effort to combat inflation. One tool of monetary policy that usually helps to reduce demand in the economy and lower the inflation rate is raising interest rates.
