Easing Hawkishness: Apex bank leaves repo unchanged at 6.5% for 5th time: RBI sees higher GDP growth at 7%
Banking on robust core industrial output, PMI, the regulator revises up economy growth prediction from 6.5%; Banks & money market participants permitted to balance adjustments to the MSF and SDF on holidays
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MPC Meet
- 1 member voted to keep the policy stance at ‘withdrawal of accommodation’
- Considering that rates may remain higher for longer
- Over-tightening can also pose growth risks to the economy
- However, policy stance not moving towards neutral
- RBI raised Repo rate by 250bps since May 2022
Mumbai: The Reserve Bank of India (RBI) on Friday expectedly left its key lending rates unchanged for the fifth consecutive time and predicted faster growth in the world’s fastest-growing major economy amid an uncertain outlook on inflation ahead of elections. The six-member Monetary Policy Committee (MPC), consisting of three RBI and an equal number of external members, voted unanimously to keep the benchmark repurchase rate at 6.5 per cent. All but one of the panel members voted to keep the policy stance at ‘withdrawal of accommodation’ in signs that rates may remain higher for longer.
The central bank raised its forecast for economic growth to seven per cent from 6.5 per cent, maintaining India’s position as the world’s fastest-growing major economy, after a stronger-than-expected 7.6 per cent growth in the July-September quarter.
“Growth has been resilient and robust, surprising everyone,” RBI Governor Shaktikanta Das said announcing the MPC decisions. The encouraging signs, including an expanding manufacturing PMI and healthy growth in eight core industries, underline confidence in sustained robust growth. On inflation, he said while there has been broad-based easing in core inflation, the near-term outlook, however, is masked by risks to food inflation, which might lead to an inflation uptick in November and December.
“This needs to be watched for second-round effects, if any,” he said, projecting consumer inflation at 5.4 per cent for 2023-24, unchanged from its previous projection. Going ahead, the inflation outlook would be considerably influenced by uncertain food prices, with elevated global sugar prices being a matter of concern.
The RBI has raised the repo rate by a total of 250 basis points (bps) since May 2022 in efforts to cool surging inflation, which dropped to 4.87 per cent in October, but is expected to remain above the four per cent medium-term target for some time. The Governor also highlighted that over-tightening can also pose growth risks to the economy, and emphasised that it is not a signal that the policy stance was moving towards neutral. Inflation remains above four per cent and monetary policy must continue to be actively disinflationary to ensure fuller transmission and anchoring of inflation expectations,” he said.
The RBI’s stance echoes the global trend of central banks signaling an enduring period of higher rates, further emphasising the need for a cautious yet progressive approach in navigating the financial landscape.
Suman Chowdhury, chief economist and head (research), at Acuite Ratings & Research, said: “The intensity of Hawkishness in the policy statement has clearly subsided and a balance has been brought in.
