RBI monetary policy: Shaktikanta Das and Co keep powder dry, repo rate remains unchanged at 6.5%
RBI on Thursday kept the Repo Rate unchanged by 4:2 majority, maintaining withdrawal of accommodation.
“Inflation across the globe is receding grudgingly,” stated Governor Das. “Policies are showing signs of divergence across geographies. Many central banks are moving toward policy pivots, while some have tightened rates as well.”
Das noted that headline inflation increased to 5.1% in June, primarily driven by the food component, while the fuel component in the CPI basket remained in deflation. He warned that the expected moderation of headline inflation is likely to reverse in the third quarter. However, resilient and steady GDP growth allows monetary policy to focus clearly on inflation, ensuring price stability which eventually supports a period of sustained growth.
Das said Marginal Standing Facility (MSF) and Standard Deposit Facility (SDF) rates remain steady at 6.75% and 6.25%, respectively. Das emphasized the strong alignment between market expectations and the MPC’s policy stance. He also pointed out that although headline inflation is projected to decrease due to a favorable base effect, this trend might reverse in the third quarter.
Global markets have been roiled in recent weeks by central bank action, with the Bank of England cutting interest rates last week, the Bank of Japan hiking, and the Federal Reserve preparing to ease amid recession fears. That may give the Reserve Bank of India reason to stay cautious after keeping rates steady for 18 months already.
But there is a chance the RBI may signal a pivot is coming months. Thursday was the last rate decision of the six-member monetary policy committee before its current four-year term expires in October.
The MPC is in for an overhaul this year. The terms of the three external members end on Oct. 6 and can’t be renewed. The other three members of the MPC are Das, whose current term ends in early December, Deputy Governor Michael Patra, whose contract runs until early January, and Executive Director Rajiv Ranjan.
