The Reserve Bank of India (RBI Monetary Policy) has left its key lending rate (repo rate) unchanged at 6.5%, in-line with market watchers and economists’ expectations. This was the seventh straight instance of the policy rates being left unchanged by India’s central bank.
The decision to keep the rates unchanged was taken with a 5:1 majority. The Monetary Policy Committee also decided by a 5:1 majority to remain focused on “withdrawal of accommodation.”
The Monetary Policy Committee also left the Marginal Standing Facility (MSF) and Standing Deposit Facility (SDF) rates unchanged at 6.75% and 6.25% respectively.
Shereen Bhan on the sidelines of the World Economic Forum (WEF) 2024 at Davos, Governor Shaktikanta Das had quashed hopes of an early rate cut. The governor had explained that price stability is the bedrock for sustainable growth, and a premature pivot in policy can prove costly for the economy.
The Reserve Bank of India has maintained India’s financial year 2025 GDP growth target at 7%. The governor mentioned that the impact of above normal temperatures warrants monitoring.
The Governor during his speech highlighted that while inflation is moving closer to target, the last mile of inflation is turning out to be challenging. As a result, the central bank has left the Consumer Price Inflation (CPI) forecast unchanged at 4.5%.
“Two years ago around this time, when CPI inflation has peaked at 7.8% April 2022, the Elephant in the room was inflation, the elephant has gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest and remain there on durable basis,” the central bank Governor said.
“The policy is broadly on the expected lines. Couple of things which I would like to borrow from the governors speech itself is that the liquidity management being nimble and flexible, I think that we could witness in the last few weeks that the liquidity is not constrained in the system. Whenever liquidity is excess, I think the absorption was done and when the shortfall is noticed, I think injection was done. So, to that extent, I think what Governor has assured us in terms of being nimble and flexible is reassuring,” SBI Managing Director CS Setty said.
Governor Das also warned that the government risks in advanced economies could erupt abruptly and that emerging economies with rising debt could be vulnerable.
