The Reserve Bank of India's Monetary Policy Committee has opted for stability, maintaining the key repo rate at 6.5 per cent for an eighth consecutive time. The decision, announced on Friday, aligns with the central bank's unwavering focus on bringing inflation down to its 4 per cent target, despite signs of robust economic growth.
A Prudent Pause in a 'Goldilocks' Scenario
Governor Shaktikanta Das, while announcing the MPC's unanimous verdict, highlighted the Indian economy's resilience. He pointed to strong domestic activity, a revival in private investment, and a healthy financial system. This combination of high growth and moderating inflation has led economists to describe the current phase as a 'Goldilocks' economy for India—not too hot, not too cold.
However, the central bank remains cautious. The MPC decided to keep the stance of monetary policy as 'withdrawal of accommodation' with a majority of 4 out of 6 members. This indicates that the fight against inflation is not yet over. Governor Das emphasized that the path to durable price stability is ongoing and requires persistent efforts.
Why Economists Call It an 'Insurance Rate Cut'
Leading economists have interpreted the RBI's steady stance as a strategic 'insurance rate cut.' By holding rates steady now, the central bank is seen as buying insurance against potential future inflationary shocks. This provides it with the flexibility to act later if needed, without having to reverse course hastily.
Aditi Nayar, Chief Economist at ICRA, noted that the RBI's policy is data-dependent and non-disruptive. She suggested that the earliest possibility for a rate cut could be in the October 2024 meeting, but only if the monsoon season is normal and inflation shows a sustained decline.
The RBI has retained its inflation forecast for the current fiscal year 2024-25 at 4.5 per cent. However, it has raised its Gross Domestic Product growth projection to 7.2 per cent from 7 per cent, reflecting confidence in the economic momentum.
Key Takeaways and Future Outlook
The central bank's decision underscores its priority: ensuring that inflation aligns with the target on a lasting basis. Governor Das clearly stated that the MPC remains vigilant against any new supply-side shocks that could derail the disinflation process.
Key decisions from the June 7, 2024, policy include:
- Repo rate unchanged at 6.50 per cent.
- Standing Deposit Facility rate remains at 6.25 per cent.
- Marginal Standing Facility rate and Bank Rate stay at 6.75 per cent.
- Monetary policy stance remains 'withdrawal of accommodation.'
For consumers and businesses, this means borrowing costs are likely to stay elevated in the near term. The RBI's cautious optimism suggests that while the economy is on a strong footing, the central bank is not ready to declare victory over inflation just yet. All eyes will now be on the monsoon and global commodity prices, which will heavily influence the MPC's next move.
