The Reserve Bank of India (RBI)-led Monetary Policy Committee on February 8 retained the key interest rate repo at 6.5 percent, signalling that the central bank's long battle against persistently high inflation is not over yet.
Repo is the rate at which the RBI lends short-term funds to banks. Also, the rate-setting panel retained the monetary policy stance unchanged at withdrawal of accommodation.
A persistently high inflation has been a major point of worry for the policymakers. Soaring prices, particularly that of essential food items, have been hurting poor households affecting their ability to purchase goods and services.
This is the sixth consecutive pause in the last year. Since the April monetary policy in 2023, the RBI has kept the repo rate unchanged at 6.5 percent, after raising it by 250 basis points (bps) in May 2022. This was after inflation showed signs of moderating. One basis point is one-hundredth of a percentage point.
No surprise
The policy outcome came on the expected lines at a five-to-one majority for both policy rate and stance. Earlier, a Moneycotrol poll of bankers and economists showed that the MPC will leave key interest rates unchanged in this week’s monetary policy review.
The MPC's rate decision is no surprise as the retail inflation is still hovering above the medium term target of 4 percent. India's headline retail inflation rate accelerated to a four-month high of 5.69 percent in December, according to data released by the Ministry of Statistics and Programme Implementation on January 12, thanks to an unfavourable base effect.
On January 18, RBI Governor Shaktikanta Das, during an interaction with a private television channel, had said that a rate cut was not under immediate consideration. “At this time, the topic of rate cut is not on our table, it’s not even under discussion. Our focus is to remain actively disinflationary, to bring the inflation to 4 percent.”
A status quo in policy rates is a non-event for the common man as banks are likely to take a wait-and-watch approach awaiting more policy cues in the approaching months before tinkering with their rates.
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