RBI Monetary Policy: MPC Keeps Repo Rate Unchanged With 4:2 Majority, Status Quo On Stance

India's Monetary Policy Committee, led by RBI Governor Shaktikanta Das, kept the benchmark repo rate unchanged for the ninth straight meeting. He continued to remain cautious on inflation amidst elevated food inflation.

After the review, the MPC decided the following on lending rates:

• To keep the repo rate unchanged at 6.5% with a 4:2 majority. Ashima Goyal and Jayanth R. Varma voted to reduce the policy repo rate by 25 basis points.

• 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 6.75%.

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

Without price stability, growth can't be sustained, emphasized Das, explaining the need to focus on inflation. The MPC may look through high food inflation when it is transitory, but in a period of persistent high food inflation it can’t do so, Das said, adding that it needs to prevent second round effects and spillovers preserve gains for monetary policy credibility.

The fluidity of global Goldilocks narratives, financial markets turmoil and policy re-pricings found little space in the Governor's speech, thanks to recent easing volatility in the financial markets, said Madhavi Arora, lead economist at Emkay.

However, noisy food inflation back home, and a still-elusive 4% inflation target formed the base for the RBI's decision. Understandably, persistent food inflation, averaging at 8% in the past 12 months, has prevented durable disinflation, she said.

Looking ahead, food price momentum has remained elevated in July. In Q2:2024-25, though favourable base effects are large, the sharper uptick in price momentum relative to earlier expectations is likely to result in a shallower softening of CPI headline inflation.

• Inflation is expected to edge up in Q3 as favourable base effects taper off. The steady progress in monsoon, pick-up in kharif sowing, adequate buffer stocks of food grains and easing global food prices are positives for containing food price pressures.

• Adverse climate events remain an upside risk to food inflation.

• Crude oil prices continue to be volatile on demand concerns and geopolitical tensions.

• The revision in mobile tariff rates is likely to lead to an increase in core inflation.

• Manufacturing, services and infrastructure firms surveyed by the Reserve Bank expect a pickup in selling prices in the second half of this year. Households’ inflation expectations have also gone up and consumer confidence has weakened.

• Going forward, the IMD projection of above normal southwest monsoon and healthy kharif sowing will support improving rural demand.

• The sustained momentum in manufacturing and services suggests steady urban demand.

• High frequency indicators of investment activity as evident in strong expansion in steel consumption, high capacity utilisation, healthy balance sheets of banks and corporates, and the government’s continued thrust on infrastructure spending point to a robust outlook.

• Improving world trade prospects could support external demand. Headwinds from geopolitical tensions, volatility in international commodity prices and geoeconomic fragmentation, however, pose risks to the outlook.

The rupee has remained range bound despite multiple factors, Das said. Amid adverse global events, it is important to keep in mind the domestic economy’s strength and resilience, he said.