RBI Keeps Interest Rates Unchanged 9th Time in a Row

MUMBAI, 8 Aug (Commoditiescontrol): The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has kept the repo rate steady at 6.5% for the ninth consecutive time as persistent food inflation continues to pose a threat to retail inflation. The rate-setting panel also maintained the monetary policy stance at ‘withdrawal of accommodation’ in its meeting on Thursday, August 8. As a result of the MPC’s decision, banks are expected to keep interest rates unchanged, and home loan and other EMIs are likely to remain at current levels. Many experts say the decision is in line with expectations, demonstrating a broader emphasis on curtailing inflation and fostering economic growth.

The six-member MPC retained the repo rate, which is the rate at which the RBI lends money to banks to meet their short-term funding needs, by a 4-2 majority decision.

The central bank has also kept the gross domestic product (GDP) growth projection for FY2025 unchanged at 7.2% and the retail inflation forecast at 4.5%, despite the persistent food inflation.

The RBI has raised concerns over elevated food inflation for the past several months, as it could derail the disinflation path. Headline inflation, as measured by year-on-year (y-o-y) changes in the all-India consumer price index (CPI), edged up to 5.1% in June from 4.8% in May. The increase in the inflation rate is attributed to food inflation, which rose to 8.4% in June compared to 7.9% in the previous month. “The food component of retail inflation remains stubborn… food inflation contributed around 70% of the overall retail inflation,” RBI Governor Shaktikanta Das said during Thursday’s policy briefing.

“High growth can’t be achieved without price stability,” Das said. “The MPC 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.”

Under the flexible inflation targeting regime, the RBI has to maintain CPI in the 2-6% range. It aims to bring inflation down to 4% on a durable basis.

"The RBI has maintained the policy of 'withdrawal of accommodation' and kept repo rates at 6.5% for the ninth time in a row, marking its second-longest pause in the last 25 years. Nonetheless, the RBI MPC's decision to maintain the policy rate is in line with expectations," said Nish Bhatt, Founder & CEO of Millwood Kane International. "It shows that the RBI will maintain a cautious approach until the MPC is certain that inflation will drop and approach the 4% target," he added.

Nikhil Gupta, Chief Economist of MOFSL Group, also found the RBI announcement to be as expected. "Overall, the policy and the forward guidance were in line with our expectations, and we appreciate the RBI's resolve to focus on inflation at a time when growth is so strong," Gupta said in an email. "This, in our view, indicates that rate cuts are not coming anytime soon (unless growth falters)," the message added.

Goldman Sachs, the global investment banker, in a report highlighted that last year's high base suggests headline inflation will fall towards 4% in Q3. However, it added that the upside risks to food inflation remain due to an uneven monsoon.

(By Commoditiescontrol Bureau; +91 98201 30172)