RBI's Monetary Policy Committee Maintains Repo Rate amid Uncertain Food Inflation


On 8th February, 2024, the six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) opted to keep the repo rate unchanged at 6.5%, marking the sixth consecutive hold.

Key Points

  • Growth and Inflation Projections: The RBI projected real GDP growth at 7% and consumer-price based inflation (CPI) at 4.5% for FY2025.
  • Notably, this growth forecast is slightly lower than the 7.3% projected by the National Statistical Office for the ongoing fiscal year.
  • Policy Rationale: RBI Governor highlighted the growth-inflation dynamics and the ongoing transmission of previous policy rate hikes as factors behind the decision to maintain the repo rate.
  • The committee aims to closely monitor food price pressures to safeguard against potential impacts on core inflation.
  • Voting Pattern: The decision to retain the repo rate was reached with a majority vote of 5:1, with one external member advocating for a 25 basis points reduction.
  • Impact on Borrowers: The status quo in the repo rate provides relief to borrowers, including those with home, vehicle, personal, and other loans, as their equated monthly instalments (EMIs) remain unaffected.
  • Monetary Policy Stance: RBI's has a commitment to a disinflationary monetary policy, aligning with the target of maintaining inflation within the 2-6% band mandated by the government.
  • Future Rate Cut Possibilities: While a rate cut could be feasible in Q2 FY25, considering inflation forecasts, any adjustments to policy stance or repo rates will depend on the trajectory of inflation, particularly in Q3 and Q4 of the next fiscal year.
  • Liquidity Management: The RBI will actively manage liquidity, which turned into a deficit in September 2023 after a prolonged surplus.
  • Proactive liquidity injections and fine-tuning operations aim to stabilize money market interest rates and ensure financial stability.
  • Economic Outlook: Despite inflationary pressures, domestic economic activity remains robust, with momentum expected to continue into the next fiscal year.
  • Structural drivers such as infrastructure development, digital technology advancement, and fiscal reforms contribute to India's growth trajectory.