RBI retains policy rate, keeps its growth target

Status quo with an increasingly hawkish rhetoric that would be the best summation of the Reserve Bank of India's latest Monetary Policy Committee (MPC)

- Roshan Kishore

While there is no change in the policy rate (it stays at 6.5%), stance of monetary policy, and growth-inflation forecasts for the current fiscal year, MPC's tone and its hawkish action on the liquidity front means that there will be no rate cuts until the next general elections. This rules out any relief on debt servicing costs for both firms and households.

MPC has retained its inflation and growth forecasts of 5.4% and 6.5% for 2023-24 and projected the corresponding June 2024 quarter values to be 5.2% and 6.6%. The RBI Governor Shaktikanta Das also emphasised the fact that RBI’s inflation target is 4% rather than 2%-6%. Read together, this means that monetary policy is unlikely to pivot towards supporting growth until the second half of 2024. In fact, the tone of both the MPC resolution and the Governor’s statement suggests that MPC could pivot towards a hawkish stance if there is a threat of food inflation pressures feeding into general prices or inflation expectations.