RBI keeps Repo Rate Unchanged

GS Paper III Indian Economy

Context:

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has kept the repo rates unchanged for the sixth time in a row at 6.5 per cent.

The repo rate is the interest rate at which the RBI lends to commercial banks.

This is the first bi-monthly policy following the presentation of Interim Budget 2024.
The RBI typically conducts six bi-monthly meetings in a financial year, where it decides interest rates, money supply, inflation outlook, and various macroeconomic indicators.

Withdrawal of Accommodation: The RBI continued with its policy stance of “withdrawal of accommodation” to ensure inflation is in step with its target of 6%(+/-2) while supporting economic growth.
- Taking into account this growth-inflation dynamics and the fact that transmission of the cumulative 250 bps policy rate hike is still underway,
Inflation Outlook: The RBI has maintained its inflation projection at 5.4% for 2023–2024.
- CPI inflation is predicted to be 4.5% for the upcoming fiscal year 2024–2025, with Q1 at 5%, Q2 at 4%, Q3 at 4.6%, and Q4 at 4.7%.
Growth Estimates: Real GDP growth for 2024-25 is projected at 7.0 per cent with Q1 at 7.2 per cent; Q2 at 6.8 percent; Q3 at 7.0 per cent; and Q4 at 6.9 per cent.
- According to MPC, recovery in rabi sowing, sustained profitability in manufacturing and underlying resilience of services will support economic activity in 2024-25.
Geopolitical Uncertainty: Geopolitical unrest in the Middle East and Red Sea region continue to pose key risks to fledgling global recovery and volatility in international financial markets and commodity prices are key sources of upside risks to inflation.

It is a statutory and institutionalised framework for a Monetary Policy Established under the Reserve Bank of India Act, 1934 (RBI Act) has been amended by the Finance Act, 2016.
The Monetary Policy Committee would be entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level of 4% (with a standard deviation of 2%) in the medium term.
The central government is empowered to constitute a six-member Monetary Policy Committee.
- It also determines the inflation target in terms of the Consumer Price Index, once in every five years in consultation with the RBI.

Function: The MPC determines the policy interest rate (repo rate) required to achieve the inflation target.

The MPC makes decisions based on a majority vote (by those who are present and voting).
In case of a tie, the RBI governor will have the second or casting vote.
The decision of the Committee would be binding on the RBI.

Also Read: Union Budget 2024-25

News Source: All India Radio

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