RBI Monetary Policy: With 4:2 Votes, Guv Das Keeps Repo Rate Unchanged At 6.5%, Committed To Disinflationary

The Reserve Bank of India (RBI) has decided to keep policy repo rate unchanged at 6.5% for the ninth time in a row. The decision received a vote of 4:2 from six-member monetary policy committee.

RBI has kept the repo rate unchanged at 6.5% throughout FY24 till date, after hiking the key interest rate for a whopping 250 basis points between May 2022 to February 2023, as inflationary pressures mounted globally after the Russia-Ukraine war. Central banks globally including in India faced an uncomfortable situation of multi-year high inflation, which led to a series of aggressive rate hike trends.

However, RBI just like the US Federal Reserve has kept a wait-on-watch mode on its monetary policy, and reiterated the need to continue with the disinflationary stance until the durable alignment of the headline CPI inflation with the target is achieved. RBI's policy decisions align with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent while supporting growth.

The latest consumer price index (CPI) rose to a four-month high at 5.08% in June 2024, owing to a sharp spike in food prices. The latest print is below the market's estimates and was also the fastest surge since February 2024. Notably, CPI inflation is below RBI's upper tolerance limit of 6% for the tenth consecutive month but is still above its medium target of 4%.The last time CPI inflation was below 4% was in September 2019. Since May 2022 till date, the lowest CPI print was 4.31% recorded in May 2023.

Apart from the policy repo rate, other key rates in RBI's policy are of SDF, MSF and bank rate. In the June 2024 policy, RBI kept the repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%. Consequently, 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%.