India Central Bank Maintains Status Quo

(RTTNews) - Despite the global market volatility, the Reserve Bank of India maintained its interest rates as well as its policy stance and emphasized on bringing food inflation under control.

The Monetary Policy Committee, led by Governor Shaktikanta Das, voted 4-2 to keep the policy repo rate at 6.50 percent.

The decision came in line with expectations. MPC members Ashima Goyal and Jayanth Varma once again voted to reduce the policy repo rate by 25 basis points.

The repo has been at 6.50 percent since February 2023 and this was the ninth consecutive time that the rates were retained.

The MPC voted 4-2 to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.

The RBI reiterated the need to continue with the disinflationary stance, until a durable alignment of the headline CPI inflation with the 4 percent target is achieved.

Inflation projection for 2024-25 was retained at 4.5 percent with risks evenly balanced.

In June, headline inflation edged up to 5.1 percent due to higher-than-expected food inflation.

The RBI revised up its inflation outlook for September FY25 quarter to 4.4 percent from 3.8 percent. Similarly, the projection for December FY25 quarter was lifted to 4.7 percent from 4.6 percent, while that for March quarter FY25 was lowered to 4.3 percent from 4.5 percent. Inflation is seen at 4.4 percent in the June quarter of FY26.

Das said the food inflation pressures cannot be ignored, and the public at large understands inflation more in terms of food inflation than the other components of headline inflation.

The governor said the bank has to remain vigilant to prevent spillovers or second round effects from persistent food inflation and preserve the gains made so far in monetary policy credibility.

Das also acknowledged the recent market volatility and also divergence in monetary policy across the globe.

Domestic economic activity continued to sustain its momentum, Das observed. The central bank maintained its growth outlook for the current financial year at 7.2 percent.

The bank lowered its growth outlook for June FY25 quarter to 7.1 percent from 7.3 percent. Meanwhile, real GDP forecast for September quarter was retained at 7.2 percent, December quarter at 7.3 percent and March quarter at 7.2 percent.

Capital Economics' economist Shilan Shah said the RBI continued to strike a hawkish tone despite the recent market turmoil.

However, the economist expects a quarter-point rate cut to materialize in December with inflation easing towards the 4 percent target over coming months.