RBI Retains Repo Rate At 6.5%, Keeps Eye On Inflation

The policy repo rate under the liquidity adjustment facility (LAF) remained unchanged at 6.50 per cent, as decided in the Reserve Bank of India’s Monetary Policy Committee (MPC) meeting on Friday. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

“We have identified high inflation as a major risk to macroeconomic stability and sustainable growth. Accordingly, our monetary policy remains resolutely focused on aligning inflation to the 4 per cent target on a durable basis,” said RBI Governor Shaktikanta Das.

“The MPC remains highly alert and prepared to undertake timely policy measures, as may be necessary, in order to align inflation to the target and anchor inflation expectations,” he added.

The committee observed that the recurring incidence of large and overlapping food price shocks can impart generalization and persistence to headline inflation. The transmission of the 250 basis points (bps) increase in the policy repo rate to bank lending and deposit rates is still incomplete and hence the MPC decided to remain focused on withdrawal of accommodation.

According to the RBI, the near-term inflation outlook is expected to improve on the back of vegetable price correction and the recent reduction in LPG prices. The MPC stated in its resolution that the future course will be influenced by various factors, including reduced pulse crop cultivation, declining reservoir levels, El Niño occurrences, and fluctuations in global energy and food prices.

From geopolitical tensions and geoeconomic fragmentation, volatility in global financial markets to global economic slowdown, and uneven monsoon, the governor, while taking all these factors into consideration, said that the growth projection has been retained at 6.5 per cent for the current financial year with risks evenly balanced. “India is poised to become the new growth engine of the world,” Governor Shaktikanta Das said.

Experts Hail Decision

“The ability of RBI to remain steadfast and focused on pitching key growth deliverables, bodes well even as global uncertainties pick pace outside. The inclusion of PM Vishwakarma scheme in PIDF will enhance market breadth and depth benefitting small scale artisans. The IRAC norms proposed for key infrastructure projects could rekindle incremental investment appetite. The strengthening of Ombudsman Scheme will further promote the interest of customers. The decision to calibrate liquidity will depend much on evolving scenario,” said Dinesh Khara, Chairman, SBI.

Rajan Bandelkar, National President of NAREDCO, said, “We welcome the decision of the Monetary Policy Committee of the Reserve Bank of India to keep repo rates unchanged. This decision will benefit everyone, ensuring liquidity in the market and adding to the festive cheer. The stability in interest rates is a relief for developers who are navigating a complex economic scenario. Unchanged rates provide a degree of predictability, which is essential for planning and executing long-term projects.”

“This decision aligns well with our industry's need for continuity and fosters an atmosphere of cautious optimism. However, we expect the central bank to remain mindful of emerging market dynamics and to continue supporting growth-oriented measures. The body of real estate developers acknowledges the careful balancing act being performed by the RBI, considering various economic factors. As we move forward, we will build a stronger real estate industry,” he added.

Steelbird Helmets has applauded the Reserve Bank of India's decision to maintain the repo rate unchanged ahead of the festive season.

“A stable repo rate is a boon for the economy during this festive time, as it translates into more spending power for the people. It fosters a sense of financial security, encouraging consumers to make confident purchasing decisions,” Rajeev Kapur, Managing Director, Steelbird Helmets said.

“This decision by the RBI not only promotes consumer spending but also instils confidence in businesses like ours to continue providing essential safety products. It's a welcome move that sets the stage for a brighter and safer festive season, where people can celebrate with peace of mind, knowing that they have the financial flexibility to prioritize their safety on the roads", Kapur added.

Other than the unchanged repo rate, a decision was also taken to permit NBFCs (middle and base layer entities) access to credit risk mitigation tools to offset their exposure with eligible credit risk transfer instruments.

It has also been decided to increase the existing limit for Gold Loans under the Bullet Repayment scheme from INR two lakh to INR four lakh in respect of Urban Co-operative Banks (UCBs) who have met the overall target and sub-targets under the Priority Sector Lending (PSL) as on March 31, 2023. The next meeting of the MPC is scheduled during December 6-8, 2023.