RBI Monetary Policy: MPC Keeps Repo Rate Unchanged At 6.5%

The RBI Monetary Policy Committee (MPC) headed by Governor Shaktikanta Das kept the repo rate unchanged at 6.5%. The FY24 GDP growth forecast retained 6.5%.

The Reserve Bank of India (RBI) announced on Thursday that it would maintain its GDP growth projection for the current fiscal year at 6.5 percent, citing favorable domestic demand conditions. 

In April, the central bank had slightly revised its forecast for the 2023-24 GDP growth to 6.5 percent from the previous estimate of 6.4 percent.

RBI Governor Shaktikanta Das stated that the demand situation within the country remains supportive of growth, and rural areas are showing signs of revival.

India’s economy experienced a growth rate of 6.1 percent in the fourth quarter of the 2022-23 fiscal year, leading to an annual growth rate of 7.2 percent, surpassing the earlier anticipated rate of 7 percent. 

Governor Das highlighted the positive factors contributing to economic activity, including increased production of the rabi crop in 2022-23, the expectation of a normal monsoon, and the sustained growth in the services sector. 

These factors, along with the government’s focus on capital expenditure, a moderation in commodity prices, and robust credit growth, are expected to support investment activity.

However, the Monetary Policy Statement also pointed out risks to the outlook, including weak external demand, geo-economic fragmentation, and geopolitical tensions. 

Despite these challenges, the RBI projected real GDP growth for 2023-24 at 6.5 percent, with growth rates of 8 percent in Q1, 6.5 percent in Q2, 6 percent in Q3, and 5.7 percent in Q4. Governor Das noted that the risks to the projection are evenly balanced.

Regarding the global economy, Governor Das mentioned that in the second quarter of 2023, it is maintaining the momentum gained in the previous quarter, despite lingering challenges such as elevated inflation, tighter financial conditions, banking sector stress, and geopolitical conflicts.

In addition to the GDP growth projection, the RBI also decided to keep the repo rate unchanged. The repo rate is the rate at which the central bank lends money to commercial banks. 

This decision indicates that the RBI is maintaining its accommodative stance to support economic recovery and ensure adequate liquidity in the system. 

The unchanged repo rate is expected to provide stability and encourage borrowing and investment activities in the economy.