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RBI maintains repo rate unchanged at 6.5%

10 Aug 2023 Evaluate

The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) has decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent. Besides, the standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent. The MPC has also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth. These decisions are in consonance with the objective of achieving the medium term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. 

On the inflation front, the MPC highlighted that the spike in vegetable prices, led by tomatoes, would exert sizeable upside pressures on the near-term headline inflation trajectory. However, this jump is likely to correct with fresh market arrivals. It added that crude oil prices have firmed up amidst production cuts. Taking into account these factors and assuming a normal monsoon, it projected CPI inflation at 5.4 per cent for 2023-24, with Q2 at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent, with risks evenly balanced. CPI inflation for Q1:2024-25 is projected at 5.2 per cent. 

On the economic growth front, it noted that the recovery in kharif sowing and rural incomes, the buoyancy in services and consumer optimism should support household consumption. It also said healthy balance sheets of banks and corporates, supply chain normalisation, business optimism and robust government capital expenditure are favourable for a renewal of the capex cycle which is showing signs of getting broad-based. Taking all these factors into consideration, it has projected real gross domestic product (GDP) growth for 2023-24 at 6.5 per cent with Q1 at 8.0 per cent; Q2 at 6.5 per cent; Q3 at 6.0 per cent; and Q4 at 5.7 per cent, with risks broadly balanced. Real GDP growth for Q1:2024-25 is projected at 6.6 per cent.

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