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RBI’s stance provides elbow room to check inflation

For the ninth time in a row, the central bank decided to continue the status quo and kept the benchmark repo rate at 6.5%

RBI’s stance provides elbow room to check inflation

RBI’s stance provides elbow room to check inflation
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9 Aug 2024 12:51 PM IST

Industry Response

• It has come about in wake of robust GDP prospects of 7.2%

• Status quo stance, amidst continuing geopolitical crises is welcome

• Real estate sector is poised to benefit from this steady stance

New Delhi: The Reserve Bank’s decision to keep interest rate unchanged will provide it an elbow room to continue focus on moderating inflation for resilient and sustained economic growth, said industry experts. For the ninth time in a row, the central bank decided to continue the status quo and kept the benchmark repo rate at 6.5 per cent. Madan Sabnavis, Chief Economist, Bank of Baroda said the RBI has quite unambiguously stated that the focus would be on headline inflation and that one cannot ignore food inflation, especially if it is persistent. “This indicates that while inflation will come down in Q2, it will rise in Q3, and one cannot take a rate cut for granted in future. Any decision will be data-driven and hence a calibrated call will be taken.

The picture may not be very clear in October and hence any change in policy and stance could be more likely not before December,” Sabnavis said. Commenting on the RBI’s decision to keep the benchmark rate unchanged, industry body Assocham said it has come about in the wake of robust GDP prospects of 7.2 per cent in 2024-25 providing elbow room to the central bank to continue with its focus on moderating inflation for a resilient and sustained economic growth. “The message in the RBI monetary policy is to keep price stability at the top of its priority list with an objective of sustained economic growth. We see convergence in these two objectives even as there is an expectation of change in stance towards ‘accommodation’ in the next one or two policy reviews,” said Assocham Secretary General Deepak Sood. Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry said, “The status quo stance of the monetary policy, amidst continuing geopolitical crises and strong domestic macroeconomic fundamentals is welcome.” Ranen Banerjee, partner and leader, economic advisory, PwC India said the continued pause in the policy rate and sticking with the stance of withdrawal of accommodation was expected given the RBI Governor’s earlier statements.

“There is no pressing need for any action on the policy rate as the yields on 10-year paper have already softened by almost 20bps owing to the index-linked flows. There is still volatility in food prices and risk of food inflation that will keep the CPI elevated above 4 per cent in FY25,” he said. In his comment, Nikhil Gupta, Chief Economist, MOFSL Group said what probably was more important was the Governor’s emphasis on the headline inflation and the focus on inflation deceleration when growth remains so good. “This, to our mind, indicates that rate cuts are not coming anytime soon (unless growth falters),” Gupta added.

RBI Interest Rate Inflation Moderation Economic Growth Monetary Policy GDP Prospects Inflation Expectations 
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