RBI Monetary Policy Highlights: Repo Rate Unchanged At 6.5%, Raises GDP Growth Forecast To 7%

India's Monetary Policy Committee decided to keep the benchmark repo rate unchanged for the fifth straight meet, RBI Governor Shaktikanta Das said.

Following the review, the MPC decided:

• To keep the repo rate unchanged at 6.5% unanimously.

• The standing deposit facility rate, pegged 25 basis points below the repo rate, is at 6.25%.

• The marginal standing facility rate, which is 25 basis points above the repo rate, is at 6.75%.

The committee had raised the benchmark repo rate by 250 basis points in the last cycle before opting for a pause starting in April's meet this year.

The stance on withdrawal of accommodation remained unchanged with a 5:1 majority.

Headline inflation remains volatile, with possible implications for the anchoring of expectations, Governor Das said. The MPC will carefully monitor any signs of generalisation of food price pressures which can fritter away the gains in easing of core inflation, he added.

• Uncertainties in food prices along with unfavourable base effects are likely to lead to a pick-up in headline inflation in November-December.

• Kharif harvest arrivals and progress in rabi sowing together with El Niño weather conditions need to be monitored.

• Adequate buffer stocks for cereals and a sharp moderation in international food prices, along with pro-active supply side interventions by the Government may keep these food price pressures under check.

• Crude oil prices may remain volatile.

• Early results from the firms polled in the Reserve Bank’s enterprise surveys indicate softer growth in input costs and selling prices for the manufacturing firms in Q4 relative to the previous quarter, while price pressures persist for services and infrastructure firms. 

• Continued strengthening of manufacturing activity, buoyancy in construction, and gradual recovery in the rural sector are expected to brighten the prospects of household consumption.

• Healthy balance sheets of banks and corporates, supply chain normalisation, improving business optimism, and rise in public and private capex should bolster investment going forward.

• With improvement in exports, the drag from external demand is expected to moderate.

• Headwinds from the geopolitical turmoil, volatility in international financial markets and geoeconomic fragmentation pose risks to the outlook. 

Monetary policy must continue to be actively disinflationary to ensure anchoring of inflation expectations and fuller transmission. The MPC will remain resolute in its commitment to aligning inflation to the target.

With system liquidity remaining tight, the need to undertake auction of OMO sales has not arisen so far, said Governor Das. While the central bank will continue to manage liquidity, government spending is likely to further ease liquidity conditions, he said.

The December policy meeting was an anti-climax of sorts, said Aurodeep Nandi, India economist and vice president at Nomura. In the run-up, there was considerable market uncertainty on the extent of hawkishness that the RBI would exude, particularly given the focus on tighter liquidity in the past two meetings, Nandi said. Instead, the RBI surprised markets by choosing to not reprise its previous hawkishness, especially through the liquidity route, he said.

"The RBI is firmly set on the course of policy pause for now, but predict 100 basis points of cumulative policy easing starting from August 2024 as inflation moderates and growth headwinds gather,” he said.