RBI MPC Meet: The Monetary Policy Committee, chaired by the Reserve Bank of India (RBI), decided to keep the benchmark interest rate repo at 6.5 percent on February 8, indicating that the central bank’s protracted fight against consistently high inflation is far from done. Remaining focused on “withdrawal of accommodation” was another decision made by the Monetary Policy Committee by a 5-1 majority, RBI Governor Shaktikanta Das announced on Thursday.
Interest Rate Landscape
At 6.25%, the standing deposit facility rate is 25 basis points less than the repo rate. At 6.75%, the marginal standing facility rate is 25 basis points higher than the repo rate. With the world economy painting a mixed picture, there is a greater chance of a gentle landing everywhere. According to RBI Governor Shaktikanta Das, the emergence of new flash points adds volatility to the global macro scene.
Repo Rate Revelation
The rate at which the RBI lends banks short-term rates is known as the repo rate. Additionally, the rate-setting panel did not alter its stance on monetary policy, which is a pullback from accommodation. For the policymakers, an ongoingly high rate of inflation has been a serious source of concern. Growing costs have proven detrimental to low-income households, especially when it comes to basic food supplies.
Inflation Above Target
Given that retail inflation is still above the medium target of 4%, the MPC’s rate decision is not surprising. According to data provided by the Ministry of Statistics and Programme Implementation on January 12, India’s headline retail inflation rate surged to a four-month high of 5.69 percent in December because of an unfavourable base impact. In the past year, there have been six pauses in a row.
Anticipation in the Air
Market observers were expecting Governor Shaktikanta Das of the central bank to make this news today. The RBI raised the repo rate by 250 basis points (bps) in May 2022, but since then, it has maintained its current level at 6.5% since the April monetary policy announcement in 2023. This came following indications of a slowdown in inflation. One tenth of a percentage point is equal to one basis point.
Adapting to Change
The Reserve Bank of India has decided to use both repo and reverse repo procedures in its market operations. The central bank is unwavering in its dedication to making decisions quickly and nimbly in order to keep up with the constantly changing economic landscape. It emphasises how inadequate transmission and inflation control should be understood in relation to the strategy of accommodation withdrawal. Prof. Jayanth R. Varma, an external member of the MPC, voted in favour of a 25 basis point drop in the policy repo rate. He also endorsed a shift to a neutral position.