RBI keeps repo rate unchanged at 6.5%

Mumbai: The Reserve Bank of India on Thursday held its key lending rate steady at a second straight policy meeting.

The monetary policy committee (MPC), which has three members from the Reserve Bank of India and three external members, kept the repo rate steady at 6.50%.

“MPC decides to remain focussed on withdrawal of accommodation of policy stance. MPC will continue to take policy actions promptly and appropriately to keep inflation expectations firmly anchored,” RBI governor Shaktikanta Das said.

Repo rate is the rate at which the RBI lends money to commercial banks. Repo rate is used by monetary authorities to control inflation. Increase in the repo rate means the cost of funds for banks will go up. In other words, this will disincentives banks from borrowing from the central bank. This will reduce the money supply in the economy and arrest inflation.

Repo and reverse repo are part of RBI's liquidity adjustment facilities.

The RBI governor also observed that the Indian economy and financial sector stood strong and resilient amidst unprecedented global headwinds. He added that the pace of global economic activity to decelerate due to geopolitical situation.

“Headline inflation is above the target of 4 per cent and expected to remain so during rest of the year. Close and continued vigil on evolving inflation is absolutely necessary,” Das said.

FY24 inflation projection at 5.1%

The RBI, meanwhile, has marginally lowered its inflation projection for the current financial year to 5.1 per cent.

In April, the RBI had estimated the consumer price index (CPI) based retail inflation at 5.2 per cent during the fiscal 2023-24. CPI inflation fell sharply to 4.7 per cent in April 2023, from 6.4 per cent in February, on the back of favourable base effects, with softening observed across all the three major groups.

For Q1 of FY24, CPI inflation is expcetd at 4.6 per cent, Q2 at 5.2 per cent, Q3 at 5.4 per cent and Q4 at 5.2 per cent, with risks evenly balanced.

"At the same time, given the uncertainties, we need to maintain "Arjuna's eye" on the evolving inflation scenario. Let me re-emphasise that headline inflation still remains above the target and being within the tolerance band is not enough. Our goal is to achieve the target of 4.0 per cent, going forward," the Governor said.

(With PTI inputs)