RBI maintains status quo on monetary policy; remains vigilant on inflation

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept its policy rates unchanged for the second consecutive time in June. It also maintained its stance of ‘withdrawal of accommodation’ to progressively align inflation to 4%, the mid-point of the RBI’s target range. The central bank is currently evaluating the impact of past rate hikes on growth and inflation while remaining cautious of the upside risks on the latter.

We expect the MPC to continue its pause on policy rates in the next meeting, too, as it evaluates the inflation trajectory. Retail inflation has been within the RBI’s tolerance band for the past two months. That said, risks from El Nino and an uneven monsoon can shore up food prices. The RBI will likely initiate rate cuts in January-March 2024 as growth moderates.

Highlights from the June monetary policy

• The MPC voted unanimously to keep policy rates unchanged, with the repo rate at 6.50%, standing deposit facility at 6.25%, and marginal standing facility at 6.75%
• The committee voted, with a 5-1 majority, to keep the ‘withdrawal of accommodation’ stance unchanged
• It slashed its projection for consumer price index (CPI)-based inflation to 5.1% for this fiscal from 5.2% estimated in the previous meeting
• It maintained its projection for growth in real gross domestic production (GDP) at 6.5% for this fiscal