Mumbai: Not belying the expectations of economists, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) announced Thursday that it has decided to keep the policy rate unchanged, at 6.5 per cent, for the sixth time in a row as it maintains a tight vigil on inflation.
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The repo rate cycle saw a freeze in April 2023 after six consecutive rate hikes aggregating to 250 basis points since May 2022. The repo rate is the rate at which the RBI lends to the commercial banks.
Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das said the committee decided to keep the repo rate at 6.5 per cent and stick to its stance on 'withdrawal of accomodation'.
Das said the MPC will keep a watch on food inflation so that the benefits gained do not get frittered away.
Also, this is the first bi-monthly policy following presentation of Interim Budget 2024-25 last week by Finance Minister Nirmala Sitharaman.
In December, the Consumer Price-based Inflation (CPI) stood at 5.69 per cent. It is the mandate of the India's central bank to ensure that the CPI should be at 4 per cent with a margin of 2 per cent on either sides.
7 pc growth projected for next financial year
The central bank projected GDP growth for the next financial year at 7 per cent on the back of improved household consumption and upturn in private capex cycle.
The real GDP growth is, however, lower than 7.3 per cent estimated by the National Statistical Office (NSO) for the current 2023-24 fiscal aided by strong domestic economic activity and investments.
The Indian economy grew 7.2 per cent in 2022-23 fiscal.
The Governor said the recovery in rabi sowing, sustained profitability in manufacturing and underlying resilience of services should support economic activity in 2024-25.
"Among the key drivers on the demand side, household consumption is expected to improve, while prospects of fixed investment remain bright owing to upturn in the private capex cycle, improved business sentiments, healthy balance sheets of banks and corporates; and government's continued thrust on capital expenditure," Das said.
The improving outlook for global trade and rising integration in the global supply chain will support net external demand.
The RBI flagged headwinds from geopolitical tensions, volatility in international financial markets and geo-economic fragmentation as risks to growth outlook.
"Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7 per cent with Q1 (April-June) at 7.2 per cent; Q2 at 6.8 per cent; Q3 at 7.0 per cent; and Q4 at 6.9 per cent. The risks are evenly balanced," Das said.
To keep inflation within the targeted 4 per cent (+/- 2 per cent) band, the RBI on Thursday retained benchmark interest rate or repo at 6.5 per cent.
The interest rate setting monetary policy committee (MPC) also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
"Global growth is likely to remain steady in 2024 after a surprisingly resilient performance in a turbulent year gone by. Inflation is edging down from multi-decade highs, with intermittent upticks," Das said.
Das said rural demand in India continues to gather pace, urban consumption remains strong and investment cycle is gaining steam on the back of increased capex.
Also, there are signs of revival in private investments. (with Agency inputs)
