“The Monetary Policy Committee judged that it is important for monetary policy to stay the course while maintaining a close vigil on the inflation trajectory and the risks thereof. Resilient and steady growth in GDP enables monetary policy to focus unambiguously on inflation,” said RBI governor Shaktikanta Das.
Two external members of the six-member Monetary Policy Committee (MPC) – Ashima Goyal and Jayanth Varma – again voted for a rate cut and change in stance to neutral. The four other members voted to maintain the monetary policy stance at withdrawal of accommodation.
The repo rate — or the rate at which the central bank lends to banks — will remain at 6.5% as four members voted for the status quo. All other rates also remain where they were. A basis point is a hundredth of a percentage point.
The outcome of the MPC’s meeting was in line with an ET poll of 12 respondents predicting a status quo on both interest rates and the stance of monetary policy.
While acknowledging that headline CPI inflation may soften in coming months due to a favourable base effect, Das flagged persistently high food prices, and warned of risks of spillovers into generalised inflation. The MPC kept the inflation forecast for FY25 unchanged at 4.5% but sharply increased the projection for the second quarter to 4.4% from 3.8% earlier.The retention of the 4% inflation forecast suggests that easing of monetary conditions could be delayed as the MPC aims to align the reading on the price gauge with the target of 4% on a durable basis. India’s Consumer Price Index inflation was at 5.08% in June, up from 4.75% a month ago, latest data showed.“Noisy food inflation back home, and a still-elusive 4% inflation target formed the base for the RBI decision making. Understandably, persistent food inflation averaging at 8% in the past 12 months, has prevented durable disinflation,” said Madhavi Arora, lead economist, Emkay Global Financial Services.
The MPC’s inflation target is 4%. On economic growth, Das said that the MPC had maintained its forecast of 7.2% GDP growth for the current fiscal year although the projection for the first quarter had been marginally lowered to 7.1% from 7.3%
“We have slightly tweaked the growth projection for the first quarter of the financial year. This is primarily due to updated information on certain high-frequency indicators which are anticipated central expenditure and core industries,” Das said.
Stock markets fell after the policy statement, with the Sensex down 0.40% at 79135.45. Bonds weakened slightly, with the yield on the 10-year benchmark government bond rising one basis point to 6.87%. Bond prices and yields move inversely. The rupee was steady at 83.96/$1.
Amid global market volatility over the past week due to concerns over a slowdown in US economic growth and a flare-up in geopolitical tensions in the Middle East, Das said that market participants should keep in mind the strength of India’s macroeconomic fundamentals.
“India has built strong buffers that impart resilience to the domestic economy from such global spillovers,” he said.
Local stock markets have witnessed considerable volatility over the past week, while the rupee has tested new lows against the US dollar amid a global wave of risk aversion.