RBI retains policy rate, ups growth projection

The Reserve Bank of India’s (RBI) last monetary policy of the calendar struck a happy note by increasing its growth forecast to 7% even as it signalled that it is completely in control of the inflation side of the growth-inflation balance it is expected to manage.

- Roshan Kishore

“The summer of 2022 is behind us,” Reserve Bank of India governor Shaktikanta Das said after the last Monetary Policy Committee (MPC) meeting for 2023, signalling a guarded victory, and more importantly, a steadfast commitment to inflation management in the Indian economy. MPC increased the policy rate by 2.5 percentage points starting May 2022 to rein in inflation — and the latest headline numbers show that even core inflation is now in check, although the overall print is some distance away from RBI’s target of 4%.

In terms of policy instruments, this is reflected in the policy rate being left unchanged at 6.5% and the monetary policy stance continuing to be that of withdrawal of accommodation. While the former was a unanimous decision in MPC, the latter saw one dissension by Jaynath R Varma. It is likely the first cut in the policy rate will come only well into 2024 – something not likely to please borrowers, including consumers who have availed house loans and seen their loan tenures or monthly instalments increase.

But both consumers and industry will take cheer from the central bank’s growth projections, though – with an expanding economy likely to improve their own prospects.