MPC maintains status quo on repo rate at 6.5%
The monetary policy committee (MPC) on Friday decided to continue its status quo on the policy repo rate as the latest retail inflation reading, despite hitting a four-month low, is still above its comfort zone and there are upside risks from food inflation.
The six-member MPC, which met from December 6 to 8, 2023, has been on pause mode this financial year (FY24) so far. The last time MPC raised the repo rate (the interest rate at which RBI provides liquidity to Banks and Primary Dealers to overcome short-term liquidity mismatches) was in February 2023, when it upped it from 6.25 per cent to 6.50 per cent.
After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC decided unanimously to keep the policy repo rate unchanged at 6.5 per cent, Governor Shaktikanta Das said.
The MPC also decided by a majority of 5 out of 6 members to remain focussed on withdrawal of accommodation to ensure that inflation progressively aligns to the target (of 4 per cent), while supporting growth.
“Since the last policy, CPI headline inflation moderated to 4.9 per cent in October from 7.4 per cent in July….There has been broadbased easing in core inflation, which is indicative of successful disinflation through monetary policy actions,” Das said in his 32nd monetary policy statement.
The near-term outlook, however, is masked by risks to food inflation, which might lead to an inflation uptick in November and possibly in December, he cautioned, adding this needs to be watched for second round effects, if any.
The Governor emphassied that domestic economic activity is holding up well.
“The MPC will remain highly alert and prepared to undertake appropriate policy action as warranted. Monetary policy must continue to be actively disninfationary to ensure fuller transmission and anchoring of inflationary expectations.
“The rate action so far is still working its way into the economy,” Das said.