RBI Monetary Policy Highlights: MPC Keeps Repo Rate Unchanged; Inflation Still Above Target, Says Das

India's Monetary Policy Committee decided to keep the benchmark repo rate unchanged for the second straight meet, RBI Governor Shaktikanta Das said. He maintained that the committee was ready to act should the situation so warrant.

Following the review, the MPC decided:

• To keep the repo rate unchanged at 6.5% unanimously.

• The standing deposit facility rate, pegged 25 basis points below the repo rate, is at 6.25%.

• The marginal standing facility rate, which is 25 basis points above the repo rate, is at 6.75%.

The MPC will not hesitate to take further action as may be required in it's future meetings, Das said. The committee had raised the benchmark repo rate by 250 basis points in the last cycle before opting for a pause in April and in June.

The stance on withdrawal of accommodation remained unchanged with a 5:1 majority. Jayanth R. Varma expressed reservations on this part of the resolution.

Headline inflation remains above target and just being in the target range is not enough, Das said.

Going forward, the headline inflation trajectory is likely to be shaped by food price dynamics.

• The forecast of a normal south-west monsoon by the India Meteorological Department augurs well for kharif crops; however, the spatial and temporal distribution of the monsoon would need to be closely monitored to assess the prospects for agricultural production.

• Crude oil prices have eased but the outlook remains uncertain.

• According to the early results from the Reserve Bank’s surveys, manufacturing, services and infrastructure firms polled expect input costs and output prices to harden.

The MPC resolved to continue keeping a close vigil on the evolving inflation and growth outlook, said the resolution. It will take further monetary actions promptly and appropriately as required to keep inflation expectations firmly anchored and to bring down inflation to the target, it added.

Economic activity remains resilient, with real GDP growth in Q4FY23 stronger than expected, aided by higher net exports and fixed investments, Das said.

• The higher rabi crop production in 2022-23, the expected normal monsoon, and the sustained buoyancy in services should support private consumption and overall economic activity in the current year.

• The government’s thrust on capital expenditure, moderation in commodity prices and robust credit growth are expected to nurture investment activity.

• Weak external demand, geo-economic fragmentation, and protracted geopolitical tensions, however, pose risks to the outlook.

The response to the VRRR auctions has been cautious, Das said. "Going forward, the RBI will remain nimble in it's liquidity management while ensuring that adequate resources are available for the productive requirements of the economy," he said.

Suvodeep Rakshit, senior economist, Kotak Institutional Equities, said that the RBI staying on a pause and maintaining its stance was in line with expectations. The central bank remains cautious on the inflation trajectory especially it's expected to remain above the 4% target for the foreseeable future.

"We believe there are some downside risks to growth," Rakshit said. Rate cuts will be contingent on significant divergence in growth-inflation prospects, he said. "We maintain our call that the RBI will be on an extended pause."