RBI to keep the repo rate unchanged. After an assessment of the ongoing and evolving macroeconomic background, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has decided to keep the repo rate unchanged at 6.50 per cent. The other values, SDF (Standing Deposit Facility) and MSF (Marginal Standing Facility) also stands unchanged at 6.25 per cent and the bank rate at 6.75 per cent. The decisions taken by the MPC stays focused on achieving a medium-term goal of CPI of 4 per cent with a bandwidth of +/- 2 per cent, together supporting growth. Inflation projected for FY 2023-24 is 5.4 per cent.

The RBI statement indicated that domestic economy is seen to be performing well and expected to keep up, at the same time be vigilant. All the 6 members of MPC unanimously voted to keep the policy repo rate unchanged at 6.50 per cent while five out of six members agreed on withdrawal of accommodation to ensure that inflation aligns with the target at the same time supports growth.

In its outlook, the RBI said that with the spike in tomato prices, a upside pressure could be seen in the near time headline inflation but likely to be correct with fresh market arrivals. Though monsoon and kharif sowing has shown improvements, the RBI has called for a careful monitoring as uneven rain distribution could become a threat. Crude oil prices have ‘firmed up’. Manufacturing, services and infrastructure firms expects eased input prices but output prices to harden. Assuming a normal monsoon with these factors, CPI inflation is projected at ‘5.4 per cent for 2023-24, with Q2 at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5. 2 per cent’ with evenly balanced risks. CPI inflation for Q1: 2024-25 is projected at 5.2 per cent’.

Real GDP growth for 2023-24 is predicted at 6.5 per cent. Caution has been called in about weak global demand, volatile global financial markets, geo political tensions and geo-economic fragmentations. Otherwise, the recovery seen in kharif sowing and rural income; buoyancy in services and consumer optimism is expected to support the household consumption. The capex cycle is expected to renew with healthy bank and corporate balance sheets, normalized supply chain, business optimism and healthy, robust government capital expenditure. Projected real GDP for Q1 is at 8.0 per cent; Q2 at 6.5 per cent; Q3 at 6.0 per cent; and Q4 is at 5.7 per cent, with broadly balanced risks. The RBI projected real GDP growth for Q1:2024-25 stands at 6.6 per cent.

The adverse weather conditions could spike headline inflation, RBI added, ‘on account of supply disruptions due to adverse weather conditions’. Domestic economic activities are seen to be holding well even with a weak external demand. ‘With the cumulative rate hike of 250 basis points undertaken by the MPC working its way into the economy, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent, but with preparedness to undertake policy responses, should the situation so warrant’. The inflation scenario, the RBI said, will be monitored well at the same time stay strong in its commitment of aligning inflation to the target.

Further, RBI governor Shaktikanta Das said that in order to address the excess liquidity due by various factors, especially the return of the Rs 2000 notes, scheduled banks were to maintain an incremental CRR of 10 % on the increase of their net demand and time liabilities between May 19 and July 28, 2023. This would come into effect from August 12, 2023.