Monetary Policy By RBI: Repo Rate Unchanged At 6.50%, MPC Turns Hawkish Due To Inflation Woes

The Reserve Bank of India (RBI) has decided to keep policy rates unchanged for the third time in a row since the onset of current financial year. On Thursday, the six-member committee chaired by RBI governor Shaktikanta Das announced the August monetary policy for the 2023-24 fiscal. Accordingly, the policy repo rate under the liquidity adjustment facility (LAF) is unchanged at 6.50%.

Further, the standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

Also, the MPC members decided to remain focused on the 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% within a band of +/- 2%, while supporting growth.

India's consumer price index (CPI) inflation accelerated for the first time in five months at 4.81% in June 2023 owing to costlier food prices, compared to 4.31% in May. It was higher than market expectations. Food inflation zoomed to 4.99% from the previous month's print of 2.91%. Although, inflation remained below RBI's upper tolerance limit of 6% since March 2023. CPI inflation has seen a significant drop from February till May 2023.

Currently, the spurt in vegetable prices especially tomatoes and onions across India paints a red picture for the country's inflation ahead and that is worrisome.

RBI is an inflation trajectory central bank, its policy decisions revolve majorly around the movement of CPI inflation among other key economic factors. RBI hiked rates by 250 bps from May 2022 to February 2023, due to stubbornly high inflation amidst macroeconomic uncertainties.

All the MPC members are --- Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth R. Varma, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das. They unanimously voted to keep the policy repo rate unchanged at 6.50%.

The minutes of the MPC's meeting will be published later in August month.