RBI retains repo rate at 6.5%
RBI Governor Shaktikanta Das said on Thursday that the committee unanimously decided to keep the repo rate at 6.5 per cent.
Chennai: Not disappointing the expectations, the Reserve Bank of India‘s (RBI) Monetary Policy Committee (MPC) did not change the repo rate from 6.50 per cent.
The MPC also decided to make the scheduled banks maintain an incremental cash reserve ratio (I-CRR) of 10 per cent on the increase in their net demand and time liabilities (NDTL) between May 19 and July 28.
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This measure is intended to absorb the surplus liquidity generated by various factors referred to earlier including the return of Rs 2,000 notes to the banking system.
Announcing the decisions of the MPC after its three-day deliberations, RBI Governor Shaktikanta Das said on Thursday that the Committee unanimously decided to keep the repo rate at 6.5 per cent.
The standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
Das said with monetary transmission still underway and headline inflation remaining higher than the 4 per cent target, the MPC decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.
However the above decision was not unanimous with Shashanka Bhide, Ashima Goyal, Rajiv Ranjan, Michael Debabrata Patra and Das voting in favour, while Prof. Jayanth R. Varma voting against.
The central bank Governor said taking into account the economic factors, the MPC has predicted GDP growth at 6.5 per cent in FY24.
As regards the inflation rate, the MPC forecast was 5.4 per cent for 2023-24 taking into account the various domestic and global factors.
“While the vegetable price shock may reverse quickly, possible El Nino weather conditions along with global food prices need to be watched closely against the backdrop of a skewed south-west monsoon so far. These developments warrant a heightened vigil on the evolving inflation trajectory,” Das said.
Reacting to this, Madan Sabnavis, Chief Economist at the Bank of Baroda, told IANS: “Interestingly the RBI has increased the forecast to 5.4 per cent from 5.1 per cent with the second quarter inflation crossing 6 per cent (6.2 per cent). This is indicative that for the present calendar year, there is no probability of a rate cut as the inflation forecast for Q3 is placed at 5.7 per cent.
“The introduction of an incremental cash reserve ratio (CRR), though on a temporary basis, will impound resources of banks and have an upward impact on market rates. While there will still be surpluses in the market, the concept of impounding of resources will exert upward pressure on sentiment and hence interest rates.
“We can assume that this will be reversed before the festival/busy season as the RBI could have gone in for open market operation (OMO) to permanently take out liquidity from the system.”
The MPC met from Tuesday to Thursday.
