The Reserve Bank of India’s Monetary Policy Committee (MPC) has announced that the repo rate will remain unchanged at 6.5 percent, as stated by Governor Shaktikanta Das on June 7.
Additionally, the standing deposit facility (SDF) is maintained at 6.25 percent and the marginal standing facility (MSF) at 6.75 percent. The central bank continues its stance of ‘withdrawal of accommodation’ in the second bi-monthly monetary policy of the financial year 2024-25.
The RBI MPC commenced its three-day meeting on June 5, culminating in today’s announcement. This marks the eighth consecutive time the RBI has kept interest rates unchanged. This MPC meeting follows the 2024 Lok Sabha election results.
The six-member MPC, headed by the RBI Governor, was anticipated to maintain the benchmark repo rate at 6.5 percent and uphold the ‘withdrawal of accommodation’ stance.
The Indian stock market benchmarks, Sensex and Nifty 50, opened flat on Friday, preceding the RBI’s monetary policy announcement. Analysts had predicted that the RBI policy would be a ‘non-event’ for the markets, expecting no change in the repo rate.
Inflation has been easing but remains above the central bank’s desired levels. India’s retail inflation was largely unchanged at 4.83 percent in April, compared to a 10-month low of 4.85 percent in March.
The central bank has consistently emphasized that after bringing inflation down to the target range of 2-6 percent, the next goal is to align it with the 4 percent target sustainably. According to the RBI’s April policy review, inflation is expected to stay above 4 percent throughout this fiscal year, except for a potential dip in the second quarter.
If the monsoon is not as normal as predicted and heatwaves impact food prices, the RBI may face new challenges in managing inflation.
The central bank had projected CPI inflation for 2024-25 at 4.5 percent, assuming a normal monsoon, with quarterly estimates of 4.9 percent for Q1, 3.8 percent for Q2, 4.6 percent for Q3, and 4.5 percent for Q4.
Interest rates in the banking system remain high following the RBI’s policy cues. Banks are struggling with slower deposit growth compared to credit growth, leading to an asset-liability mismatch.
The June 7 policy review comes shortly after the Lok Sabha elections, where the ruling BJP fell short of a majority but formed a coalition for a third term. The central bank will closely monitor whether the new government adheres to the fiscal consolidation path.
Global factors will also be monitored. A surge in crude oil prices due to an escalation in the Israel-Iran conflict, combined with a possible heatwave across India that could drive up food inflation, may complicate the rate-setting panel’s inflation management.
