Hawkish RBI keeps rates unchanged
Says any surge in the inflation print, if continued for a longer period, may necessitate fresh action; sees daunting challenges for growth due to inflation, geopolitical uncertainty and extreme weather conditions
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Mumbai The Reserve Bank of India (RBI) on Thursday left its key interest rates unchanged for a third straight meeting but signalled tighter policy if food prices drive inflation higher. The monetary policy committee, which has three members from the central bank and a similar number of external members, held the benchmark repurchase rate (repo) at 6.50 per cent in a unanimous decision. It retained the stance on ‘withdrawal of accommodation,’ but Governor Shaktikanta Das sounded hawkish when he highlighted that headline inflation needs to subside sustainably below 4 per cent and any surge in the inflation print, if continued for a longer period, may necessitate fresh action. RBI elevated their CPI forecast by 30bps to 5.4 per cent for FY24.
“Inflationary risks persist amidst volatile international food and energy prices, lingering geopolitical tensions and weather-related uncertainties.” The RBI raised its inflation forecast for the current financial year ending March 2024 to 5.4 per cent from 5.1 per cent earlier, citing pressures from food prices. In the July-September quarter, it saw inflation at 6.2 per cent, significantly higher than the 5.2 per cent earlier forecast. “We do look through idiosyncratic shocks but if it shows signs of persistence, we have to act,” he said detailing decision of the MPC meeting here. The MPC drew confidence from moderation in core prints and expects a seasonal correction in food prices in the fourth quarter of 2023. This is the third straight meeting where RBI kept interest rates unchanged. Prior to that, it had raised interest rates by 250 basis points (bps) since May 2022 in a bid to cool surging prices.
RBI retained its projection for Indian economic growth at 6.5 per cent for the current 2023-24 fiscal year (April 2023 to March 2024). “Aggregate demand conditions continue to be buoyant,” Das said.
Food price spikes in India, typical at the onset of the monsoon, drove up headline inflation in June, snapping a four-month downward trend. Headline inflation, after reaching a low of 4.3 per cent in May 2023, rose in June and is expected to surge during July-August led by vegetable prices.
