RBI Holds Firm on Repo Rate at 6.5%: Steering Through Inflation for Economic Resilience and Stability

The RBI's MPC maintained the repo rate at 6.5% amidst retail inflation concerns, while enhancing financial security measures and revising GDP growth projections, indicating economic resilience and stability.
RBI Holds Firm on Repo Rate at 6.5 Percent

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has concluded its latest meeting, deciding to keep the repo rate steady at 6.5%. Despite ongoing retail inflation rates exceeding the 4% target, the six-member committee, with a 5:1 vote, opted for no change in the rate for the sixth consecutive meeting. This decision comes amid the backdrop of retail inflation remaining above the RBI’s comfort zone but showing signs of decline.

In other developments, the RBI announced several key initiatives and forecasts:

  • Introduction of a cloud-based system aimed at bolstering data security and privacy within the financial sector.
  • An increase in the e-mandate limit for recurring transactions, raising it from the current Rs 15,000 to Rs 1 lakh.
  • An optimistic outlook for the Indian economy, citing its stronger position to navigate global uncertainties compared to many other countries.
  • A commitment to remain vigilant and reactive to evolving economic conditions.
  • Confidence in meeting external financing needs, supported by $604 billion in forex reserves as of December 1.
  • Notable stability and low volatility of the Indian rupee, especially when compared to other emerging market currencies in 2023.
  • An acknowledgment of potential inflationary pressures from intermittent vegetable price spikes in the coming months.
  • Maintenance of the projected average retail inflation rate at 5.4% for FY24.
  • Adjusted GDP growth predictions, forecasting 6.5% and 6% growth in the December and March quarters, respectively, and an overall increase to 7% for the current fiscal year from the previous estimate of 6.5%.
  • The proposal to increase the UPI transaction cap for payments to hospitals and educational institutions from Rs 1 lakh to Rs 5 lakh.

RBI Governor Shaktikanta Das, who presides over the MPC, reiterated the decision to maintain the repo rate at 6.5%. This rate was last adjusted in February of the previous year, rising from 6.25% to 6.5% in an effort to control inflation influenced by global factors. The rate was subsequently left unchanged in the December 2023 meeting.

The MPC, which commenced its three-day discussion on Tuesday, is focused on achieving the RBI-mandated inflation target of 4%, with a 2% tolerance range on either side, while also considering economic growth objectives. The retail inflation rate has seen a decline after peaking at 7.44% in July 2023, reaching 5.69% in December 2023, which falls within the RBI’s target range.

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