RBI Monetary Policy Highlights: MPC Keeps Repo Rate Unchanged, Stays Hawkish

India's Monetary Policy Committee decided to keep the benchmark repo rate unchanged for the fourth straight meet.

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 committee had raised the benchmark repo rate by 250 basis points in the last cycle before opting for a pause in April, June and August.

All MPC members voted to keep the stance unchanged, except for Jayanth R. Varma, who expressed reservations on this part of the resolution.

The MPC must monitor incoming data and outlook to clearly delineate durable components of price shocks from transitory ones, Governor Shaktikanta Das said. Throughout much of the third quarter, food inflation pressures may not see sustained easing, while external pressures continue to remain volatile, Das said.

"Monetary policy must be in absolute readiness to prevent spill-overs from food and fuel price shocks to underlying inflation threats and risks to anchoring inflation expectations," said Das. "These are non-negotiable necessities."

While liquidity remains nimble, Das said the central bank might have to consider open market sales of government securities, dependent on conditions.

Headline inflation remains above the target range in August, driven by food price pressures, though easing core inflation remains a silver lining.

• The near-term inflation outlook is expected to improve on the back of vegetable price correction and the recent reduction in LPG prices.

• The future trajectory will be conditioned by a number of factors like lower area sown under pulses, dip in reservoir levels, El Niño conditions and volatile global energy and food prices.

• According to the Reserve Bank’s enterprise surveys, manufacturing firms expect higher input cost pressures but marginally lower growth in selling prices in Q3 compared to the previous quarter. Services and infrastructure firms expect a moderation in growth of input costs and selling prices.

Economic activity remains resilient with a positive momentum so far.

• Domestic demand conditions are expected to benefit from the sustained buoyancy in services, revival in rural demand, consumer and business optimism, the government’s thrust on capex, and healthy balance sheets of banks and corporates.

• Headwinds from global factors like geopolitical tensions, volatile financial markets and energy prices, and climate shocks pose risks to the growth outlook.