RBI HOLDS RATE AT 6.50% AMID INFLATION CONCERNS, EYES GROWTH

With economic activity holding up well and expected to be boosted by an expected boost in festive demand conditions, an uptick in investment intentions, revival in rural demand and improving business outlook, the RBI reinforced its commitment to align inflation to the target of 4 per cent and support growth by keeping the Repo rate at 6.50 per cent, while signalling vigilance on global headwinds.

- NIVEDITA MUKHERJEE

The RBI also retained standing deposit facility at 6.25 percent and marginal standing facility at 6.75 per cent. The projection of real GDP growth for 2023-24 is at 6.5 per cent, of which Q2 of the financial year will contribute 6.5 per cent, Q3 will bring in 6.0 per cent and Q4 a share of 5.7 per cent. Real gross domestic product (GDP) posted a growth of 7.8 per cent year-on-year (y-o-y) in Q12023-24 (April-June), underpinned by private consumption and investment demand.

One reason for the monetary policy committee of the RBI to vote on retaining the status quo is that the cumulative policy repo rate hike of 250 basis points is still working its way through the economy. "The MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting, but with preparedness to undertake appropriate and timely policy actions, should the situation so warrant," RBI Governor Shaktikanta Das said, unveiling the MPC decisions.

For economists, largely the steady interest rates with no change in stance was widely expected and par for the course, as pointed out by Dharmakirti Joshi, Chief Economist, CRISIL. Joshi observes that despite the second quarter bulge in inflation, the RBI kept its inflation forecast for the current fiscal unchanged at 5.4 per cent.