RBI Monetary Policy: MPC Keeps Rates Steady For 8th Time, Repo Rate At 6.5% After NDA Wins 2024 Election

In an un-unanimous votes, the six-members MPC led by RBI governor Shaktikanta Das has decided to keep repo rate unchanged at 6.5% for the eighth consecutive policy. This is in-line with market estimates. Also, the MPC maintained their policy stance to 'withdrawal of accommodation'. Indian market reacted positively to the policy with Nifty regaining above 23,000 mark.

Accordingly, the standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent. MPC decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

RBI's 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 +/- 2 per cent, while supporting growth.

On the latest policy, Aditi Nayar, Chief Economist, Head of Research and Outreach at ICRA said, "The status quo from the MPC was on expected lines, with only the voting change on the stance to 4:2 posing a surprise. Despite this, the 10 year G-sec yield remained above 7%, with the actual start to the rate cut cycle appearing distant."

Of the total MPC members, two of them voted to cut rates by 25 bps, while four of them including RBI governor decided to keep rates unchanged.

Dr. Shashanka Bhide, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50 per cent. Dr. Ashima Goyal and Prof. Jayanth R. Varma voted to reduce the policy repo rate by 25 basis points, as per the statement.

RBI said, MPC reiterates the need to continue with the disinflationary stance, until a durable alignment of the headline CPI inflation with the target is achieved. Enduring price stability sets strong foundations for a sustained period of high growth. Hence, the MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

For FY25, RBI expects GDP growth at 7.2%, while CPI inflation is projected at 4.5% which will be above RBI's medium-term target still.

According to Ajit Kumar Kabi, Research Analyst - BFSI, LKP Securities, the FY25 CPI inflation forecasted at 4.5%, whereas the GDP growth revised upward to 7.2% versus 7.0% estimated earlier. The food inflation remains higher which is likely to cool off with normal monsoon. He added, "We expect the accommodative stance post the full budget announcement on July 24. Additionally the food inflation will be key monitorable."

The minutes of the MPC's meeting will be published on June 21, 2024. While the next meeting of the MPC is scheduled during August 6 to 8, 2024.

India's CPI inflation has been cooling off and reached 4.83% in April 2024, at an 11-month low. Further gradual easing is expected for FY25 to reach RBI's medium-term target of 4%. However, food prices, monsoon conditions and commodity prices play a potential spoilsport for not only CPI but also a rate-cut scenario in later 2024.

After Russia invaded Ukraine, inflationary pressures escalated globally which pushed major central banks to hike key fund rates including RBI. From May 2022 to February 2023, RBI raised the policy repo rate by 250 bps to 6.5%. However, with economic conditions easing, inflation has started to pull back moderately. Accordingly, RBI has been in a wait-and-watch mode since the start of FY24 by maintaining the status quo.