In its February review meeting, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) unanimously opted to maintain the policy repo rate at 6.5 percent, marking the sixth consecutive instance of maintaining the status quo.
The repo rate, representing the interest rate at which the RBI lends to other banks, remains unchanged. RBI Governor Shaktikanta Das, discussing the policy statement after the three-day review meeting, attributed the decision to the comfortable inflation levels and resilient growth dynamics.
Governor Das highlighted that inflation is nearing the target, and economic growth is holding up better than anticipated. Despite being within the RBI’s comfort range of 2-6 percent, retail inflation in India stood at 5.69 percent in December, slightly above the ideal 4 percent scenario.
The MPC, with a majority of 5 out of 6 members, decided to concentrate on withdrawing accommodation to ensure a progressive alignment of inflation with the target while supporting economic growth.
The Indian economy exhibited robust growth, registering a 7.6 percent expansion during the July-September quarter of the fiscal year 2023-24, maintaining its status as the fastest-growing major economy. In the April-June quarter, India’s GDP growth reached 7.8 percent.
The three-day bi-monthly meeting of the RBI’s Monetary Policy Committee, where interest rates, money supply, inflation outlook, and various macroeconomic indicators are deliberated, concluded after a thorough review.
A notable decline in inflation, with the potential for further decrease, likely influenced the central bank’s decision to keep the key interest rate unchanged. Despite concerns about inflation in many countries, including advanced economies, India has effectively managed its inflation trajectory.
Except for the recent pauses, the RBI had increased the repo rate by a cumulative 250 basis points to 6.5 percent since May 2022 in its efforts to combat inflation. Raising interest rates is a monetary policy tool that typically curbs demand in the economy, contributing to a decline in the inflation rate.