RBI holds repo rate steady at 6.5 per cent for the fourth time, inflation remains a concern

The Reserve Bank of India (RBI) Governor Shaktikanta Das announced on Friday that the monetary policy committee (MPC) has opted to maintain the policy repo rate at 6.50 per cent, marking the fourth consecutive time the rate remains unchanged.

In his policy statement, The Indian Express quoted Das as saying, "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 emphasised the importance of both macroeconomic stability and inclusive growth, asserting that the combination of policies implemented in recent years, despite facing numerous and unprecedented challenges, had contributed to the achievement of stability in both macroeconomics and finance.

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Das noted that India has transitioned from the twin balance sheet stress of a decade ago to a twin balance sheet advantage, with both banks and corporate demonstrating healthier financial positions.

Reacting to the RBI's decision to continue with the rate pause, Adhil Shetty, CEO of Bankbazaar.com, said, "The Reserve Bank of India expectedly kept the policy rates paused in its monetary policy review for October.This is welcome, although inflation is expected to remain elevated for longer than anticipated."

According to Shetty, interest rates and inflation are moving in a positive direction with limited upward risks. Additionally, he noted that the central bank intends to maintain control over growth expectations through various monetary policy tools.

This decision comes as the RBI continues to grapple with keeping retail inflation within the target of 4 per cent. While India's retail inflation eased to 6.83 per cent in August, Das acknowledged that it remains above the upper limit of RBI's tolerance band, highlighting concerns about inflation.

While the RBI governor anticipates a potential easing of retail inflation in September, the decline in kharif sowing poses a potential threat. The RBI has maintained its CPI-based inflation forecast for FY24 at 5.4 per cent.

In terms of GDP, the RBI has retained its forecast, expecting real gross domestic product (GDP) to grow at 6.5 per cent for the fiscal year 2023-24 (FY24).

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