Shaktikanta Das,Governor, Reserve Bank of India
The monetary policy committee (MPC), which has three members from the central bank and three external members, retained the key lending rate or the repo rate at 6.50%, in a unanimous decision
Retail inflation forecast for FY24 has been lowered to 5.2 per cent from 5.3 per cent
Eonomic growth projection marginally revised upward for the current fiscal to 6.5 per cent, from its earlier estimate of 6.4 per cent
Mumbai:
India’s central bank held its key repo rate steady on Thursday, after having raised it at each of six previous meetings, as risks to growth have risen following recent global financial turmoil.
The repo rate, also known as the repurchase option, is the interest rate at which the RBI lends money to commercial banks against securities like treasury bills or government bonds.
The Reserve Bank of India(RBI) said it stood ready to act against inflation if conditions warranted, with Governor Shaktikanta Das saying the decision to pause was “for this meeting only”, signalling further rate hikes were still possible.
The monetary policy committee (MPC), which has three members from the central bank and three external members, retained the key lending rate or the repo rate at 6.50%, in a unanimous decision.
He added that the path to bring and keep inflation within the target limit is proving to be “long and ardous”.
The retail inflation forecast for FY24 has been lowered to 5.2 per cent from 5.3 per cent previously by the RBI while it has marginally revised upwards the economic growth projection for the current fiscal to 6.5 per cent, from its earlier estimate of 6.4 per cent.
Das said the GDP growth in the first quarter of 2023-24 is expected at 7.8 per cent.
Das said the repo rate has been kept unchanged on basis of macroeconomic and financial conditions. It remained focused on withdrawal of accommodation.
“The year 2023 began on promising note as supply conditions were improving, economic activity remained resilient, financial markets exuded greater optimism and central banks were steering their economies towards a soft landing. In just about a few weeks in the month of March, this narrative has undergone a dramatic shift. The global economy is now witnessing a renewed phase of turbulence with fresh headwinds from the banking sector turmoil in some advanced economies,” said Das.
Cutting retail inflation projection marginally to 5.2 per cent, from its February projection of 5.3 per cent, in the current fiscal, the RBI flagged adverse climatic conditions and rising uncertainty in international financial markets as future risks.
Although the expectation of a record Rabi harvest bodes well for easing of food price pressures, milk prices are likely to remain firm going into the summer season due to tight demand-supply balance and fodder cost pressures, RBI said.
Das said the overall outlook remains ”dynamic and fast evolving” amid the recent jump in crude oil prices following sudden announcement by OPEC+ countries to cut output.
Assuming annual average crude oil price of USD 85 per barrel and a normal monsoon, the retail inflation in the current fiscal is projected to moderate to 5.2 per cent, Das said in the monetary policy statement.
In the last fiscal, which ended March 31, RBI projected average annual retail inflation at 6.5 per cent.
The growth for second, third and fourth quarter of the current fiscal has been projected at 6.2 per cent, 6.1 per cent and 5.9 per cent, respectively..
In Q1FY24, consumer price index (CPI)-based inflation is expected to be 5.1 per cent. Earlier, it was 5 per cent.
For Q2FY24, the inflation forecast has been retained at 5.4 per cent. In Q3 and Q4, the retail inflation forecast has been kept at 5.4 and 5.2 per cent respectively
Most analysts had expected one final hike of 25 basis points in the RBI’s current tightening cycle, which has seen it raise the repo rate by a total of 250 bps since May last year.
Early signs of a slowdown in India are visible in easing imports and plateauing bank credit demand. Although inflation remains elevated, it is expected to ease.