RBI keeps interest rate unchanged for ninth time in a row

The Reserve Bank of India on Thursday decided to keep the policy repo rate unchanged at 6.50 per cent for the ninth time in a row. Consequently, the standing deposit facility (SDF) rate remains at 6.25 percent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent. The Monetary Policy Committee, MPC, also decided by a majority of 4 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with  the target, while supporting growth. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of plus or minus two percent, while supporting growth.The MPC met on 6th, 7th and 8th August. The next meeting is scheduled for October 7 to 9, 2024.
RBI Governor Shaktikanta Das said food inflation remains "stubbornly" high. "Without price stability, high growth cannot be sustained," he said, adding that "monetary policy must continue to be disinflationary". He said the MPC could have looked through high food inflation if it was transitory. "But in an environment of persisting high food inflation, as we are experiencing now, the MPC cannot afford to do so. It has to remain vigilant to prevent spillovers or second round effects from persistent food inflation and preserve the gains made so far in monetary policy credibility." The MPC last revised interest rate in February 2023, when it was hiked to 6.5 per cent.
The status quo by RBI comes amid varied central bank action in advanced economies. While the Bank of England reduced interest rates last week, Bank of Japan hiked rates to their highest levels since 2008. Also, fears of a US recession have risen on the back of weak employment numbers, piling up pressure on the Federal Reserve to start cutting rates to support the economy.RBI retained India's GDP growth forecast at 7.2 per cent and headline CPI inflation at 4.5 per cent for the current fiscal 2024-25.

(Writer is a Finance Research Analyst, based in Gandhinagar, Gujarat)