The Reserve Bank of India's monetary policy committee (MPC) on April 5 left the key repo rate unchanged at 6.5 percent for the seventh time in a row, in line with the market expectations, with its focus firmly on bringing inflation down.
In its first meeting of FY 25, the rate-setting panel left the stance unchanged as withdrawal of accommodation. The decisions were takes with a 5:1 majority.
Repo is the rate at which the central bank lends money to banks for the short term.
The RBI Governor also announced that there will be no changes in the GDP growth forecast for FY25. The GDP growth estimate was retained at 7 percent for the current fiscal year. On the inflation front, the RBI MPC sees it at 4.5 percent for FY25.
Between May 2022 and February 2023, the rate-setting panel raised the repo rate by 250 basis points (bps) but has since held it steady.
One basis point is one-hundredth of a percentage point.
A Moneycontrol poll of 21 bankers, economists and fund managers had expected the MPC to hold rates one more time, retaining the key repo rate at 6.5 percent. The majority of the respondents expected no change in its policy stance as well.
Headline inflation has eased in the recent months. At 5.09 percent in February, inflation stayed largely unchanged from 5.1 percent in the previous month.
Core inflation eased to 3.3 percent. Core inflation refers to the non-food, non-oil part of inflation, a key measure of price trends used for policy formulation.
The overall inflation print is, however, yet to align with the central bank’s 4 percent target.
While CPI inflation has extended its stay in the RBI tolerance band of 2 to 6 percent for a sixth straight, it has now spent 53 months in a row above the medium-term target of 4 percent.
Recently, RBI governor Shaktikanta Das said the Consumer Price Index (CPI) inflation was on a downward trajectory but the central bank was focused on a 4 percent target on a sustainable basis.
“We would like inflation to be durably around 4 percent. It has to be sustainably and durably 4 percent. That will give us greater confidence. Direction is clear, inflation is on a downward trajectory,” Das said in an interview to a private television channel.
Recently, the US central bank left the key rates unchanged while reiterating caution on inflation.
It is unlikely for the Indian central bank to precede the Fed in rate reversal, economists at Emkay Global said.
On the growth front, India's economy grew at 8.4 percent, its fastest pace in 18 months, in the final three months of 2023, led by strong manufacturing and construction activity.
The government has revised its growth estimate for 2024 to 7.6 percent from 7.3 percent.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
