RBI Keeps Policy Repo Rate Unchanged At 6.50%
FinTech BizNews Service
Mumbai, August 8, 2024: This was the 50th meeting of the Monetary Policy Committee (MPC) since its inception in September 2016. The flexible inflation targeting (FIT) framework will soon complete eight years of its functioning. Shaktikanta Das, Governor, Reserve Bank of India, said today: “The framework has worked well in maintaining macroeconomic stability even during times of extreme stress. Its embedded flexibility has withstood the pandemic-related stress, the spillovers from the war in Ukraine and the continuing geopolitical crisis. Today, while India’s growth remains strong, inflation is broadly on a declining trajectory. Strong macroeconomic fundamentals have led to greater confidence in India’s prospects.”
Decisions and Deliberations of MPC
The Monetary Policy Committee (MPC) met on 6th, 7th and 8th August 2024. While announcing the decisions of the MPC on Thursday, Das Stated: “After a detailed assessment of the evolving macroeconomic and financial conditions and the outlook, it decided by a 4 to 2 majority to keep the policy repo rate unchanged at 6.50 per cent. Consequently, the standing deposit facility (SDF) rate remains at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent. The MPC also decided by a majority of 4 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. I shall now briefly set out the rationale for these decisions. Headline inflation, after remaining steady at 4.8 per cent during April and May 2024, increased to 5.1 per cent in June 2024, primarily driven by the food component, which remains stubborn. Core inflation (CPI excluding food and fuel) moderated, while the fuel group remained in deflation. The expected moderation in headline inflation during the second quarter of 2024-25 on account of favourable base effects is likely to reverse in the third quarter. Domestic growth, however, is holding up well on the back of steady urban consumption and improving rural consumption, coupled with strong investment demand.”
Amidst this confluence of factors, the MPC judged that it is important for monetary policy to stay the course while maintaining a close vigil on the inflation trajectory and the risks thereof. Resilient and steady growth in GDP enables monetary policy to focus unambiguously on inflation. It must continue to be disinflationary and resolute in its commitment to aligning inflation to the target of 4.0 per cent on a durable basis. Accordingly, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting. The commitment of monetary policy to ensure price stability would strengthen the foundations for a sustained period of high growth. Hence, the MPC reiterated the need to continue with the disinflationary stance of withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
