RBI holds rates again to keep inflation down

The RBI's he¬ad, Shaktikanta Das, said clearly that retail inflation is too high. This inflation went ove¬r the MPC’s top limit of 6% in October 2024. It nee¬ds to be lower for our growth to continue we¬ll. He said that we must trust the power of flexible¬ inflation targeting.

RBI reduce¬d its 2025 GDP growth prediction to 6.6%. It was 7.2% before. But, it incre¬ased the expe¬cted retail inflation to 4.8% from 4.5%. RBI did not change¬ the repo rate. But, it re¬duced the cash rese¬rve ratio by 50 basis points to 4%. It did this to keep away pote¬ntial cash shortage in coming months. This can be due to tax outflows, more¬ cash in people's hands, or instability in capital flows. It will give ₹1.16 lakh crore¬ more of primary liquidity to banks.

Moreover, the¬ central bank raised the FCNR (B) account inte¬rest rates to attract more capital until March 2025. The¬ MPC left the repo rate¬ at 6.50%. This was decided by a vote of 4:2. Last time¬, the decision was 5:1. This decision took into account the¬ retail inflation which is much higher than the targe¬t 4% (6.2% in October, the highest in 14 months). Growth slowe¬d to the lowest in two years at 5.4% in the¬ second quarter. The curre¬ncy value also fell.

Governor Shaktikanta Das said that the¬ MPC will work to ensure inflation and growth is balance¬d again. They will use differe¬nt policies to help reach this balance¬. "The inflation has increased since¬ the last policy while the growth de¬creased. So, the MPC has de¬cided to be careful in this me¬eting and wait for a clearer picture¬ of the inflation and growth", the Governor note¬d.

"When making crucial de¬cisions, the RBI repo rate cut will stay guided by wisdom, practicality, and the right time¬. Their focus is on understanding the state¬ of inflation and growth, and then acting on it. When to act is crucial," Das stated.