The Reserve Bank of India’s Monetary Policy Committee (MPC) kept the policy repo rate unchanged at 6.50% under the Liquidity Adjustment Facility (LAF). Reserve Bank of India Governor Shaktikanta Das announced the panel’s decision on Thursday.

As a result, the Standing Deposit Facility (SDF) interest rate remained unchanged at 6.25%, and the Marginal Standing Facility (MSF) interest rate and bank interest rate remained unchanged at 6.75%.

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The Monetary Policy Committee also decided to continue to focus on unwinding accommodation to ensure that inflation is gradually aligned with the target while supporting economic growth.

After six consecutive interest rate hikes since May 2022, which cumulatively reached 250 basis points, the interest rate hike cycle was suspended in April last year.

Why RBI keeps repo rate unchanged?

Based on its assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee decided to maintain key interest rates unchanged. Announcing the decisions, the RBI Governor said the decisions are aimed at achieving the medium-term target of consumer price index (CPI) inflation of 4 per cent in the range of +/- 2 per cent while supporting economic growth.

The Reserve Bank of India remains closely vigilant about inflation. Das said the MPC will continue to keep an eye on food inflation so that the benefits gained are not squandered.

India’s inflation rate remains above the Reserve Bank of India’s target of 4%, with a buffer of +/- 2%. In December, consumer price inflation (CPI) was 5.69%. Maintaining the current repo rate may help control inflation.

The government has asked the Reserve Bank of India to ensure that consumer price index (CPI) inflation remains at 4%, with a gap of 2% on both sides.

This is the first bi-monthly policy following the announcement of the 2024-25 medium-term budget last week.

GDP Forecast

The Reserve Bank of India expects GDP to grow at 7% in 2024-25, down from the 7.3% growth forecast for this fiscal year.

Rural demand continues to accelerate, urban consumption remains strong and the investment cycle is strengthening amid rising capital expenditure, Das said.

Das said there are signs of recovery in private investment. Real GDP is expected to grow at 7% in 2024-25, with growth in the June and September quarters at 7.2% and 6.8% respectively.

Growth in the December and March quarters is expected to be 7% and 6.9% respectively. Das said domestic economic activity remains strong, with growth estimated at 7.3 per cent in the current financial year as per the National Bureau of Statistics.

“The momentum seen in 2023-24 is expected to continue in the financial year 2024-25,” Das said.