RBI keeps Repo Rate unchanged at 6.5 percent

The Reserve Bank of India (RBI) announced on Friday that the central bank’s Monetary Policy Committee (MPC) unanimously decided to keep the key repo rate at 6.5 percent, in line with economists’ expectations.

This is the fourth time that the MPC’s six members have decided to keep key interest rates unchanged.

The Monetary Policy Committee (MPC) met on 4th, 5th and 6th October 2023. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, it decided unanimously to keep the policy repo rate unchanged at 6.50 per cent. Consequently, the standing deposit facility (SDF) rate remains at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent. The MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

The rationale for the MPC’s policy rate and stance decisions. Tomato and other vegetable prices drove up headline inflation in July. It corrected partially in August and is expected to ease further in September as these prices moderate. A silver lining in all of this is that core inflation (CPI excluding food and fuel) is declining.

However, the overall inflation outlook is clouded by uncertainties caused by a drop in kharif sowing for key crops such as pulses and oilseeds, low reservoir levels, and volatile global food and energy prices. The recurring occurrence of large and overlapping food price shocks, according to the MPC, can impart generalisation and persistence to headline inflation.

Economic activity, on the other hand, has held up well. Taking into account the evolving inflation-growth dynamics as well as the cumulative policy repo rate hike of 250 basis points that is still working its way through the economy, the MPC decided to maintain the policy repo rate at 6.50 percent at this meeting.

Because the transmission of the 250 basis point (bps) increase in the policy repo rate to bank lending and deposit rates is still incomplete, the MPC decided to maintain its focus on withdrawal of accommodation. The MPC remains on high alert and ready to implement timely policy measures as needed to align inflation with the target and anchor inflation expectations.