RBI’s June MPC meeting: Repo rate held steady for 8th straight time with ‘withdrawal of accommodation’ stance

On expected lines, the RBI Governor-led monetary policy committee in its second bi-monthly policy meeting for the FY 2024-25 decided by a 4:2 majority to hold the repo rate steady at 6.5 per cent for the eighth consecutive time. The repo rate is the interest rate at which RBI provides loans to commercial banks for a short term.

Dr. Shashanka Bhide, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50 per cent. Dr. Ashima Goyal and Prof. Jayanth R. Varma voted to reduce the policy repo rate by 25 basis points, noted the RBI's monetary policy statement.

“ Indian economy exhibits strong fundamentals, financial stability,” said RBI governor Shaktikanta Das in his speech.

Also, the previous stance of ‘‘withdrawal of accommodation’ has been continued. Consequently, the MSF and SDF rates remain unchanged at 6.75 per cent and 6.25 per cent respectively.

In its opening comments, the Governor added that the central bank has to be vigilant given the 'uncertain global environment.' Further, in respect of the GDP forecast for the current FY 2025, the RBI has revised it higher to 7.2 per cent as against 7 per cent earlier. 

Giving out the rationale for these decisions, Das said the inflation-growth balance is moving favourably. Growth is holding firm. Inflation continues to moderate, mainly driven by the core component which reached its lowest level in the current series in April 2024, he added.

Nonetheless, while delivering his speech, Das iterated that our actions are primarily driven by domestic conditions, outlook (contrary to the popular view that we follow in the Fed's footsteps), hinting that RBI may not wait for Fed rate cut in the current cycle.

For the June quarter, the RBI expects GDP growth at 7.3 per cent, up from 7.1 per cent earlier. For the September quarter, it has been increased to 7.2 per cent from 6.9 per cent  earlier. The December quarter is likely to see GDP growth of 7.3 per cent as against the earlier forecast of 7 per cent, while India's GDP for the last and final March quarter it is expected at 7.2 per cent  from 7per cent  projected earlier.

Saugata Bhattacharya, Senior Economist after the June MPC outcome said that RBI is in no hurry to reduce rates. Further, he added that any central bank works on rate changes on a step-by-step basis. In RBI's case, dissent is increasing from 5:1 to 4:2. Seeing the current economic landscape, the expert sees rate cut unlikely before December.

Ms. Manju Yagnik, Vice Chairperson of Nahar Group and Senior Vice President of NAREDCO Maharashtra said the RBI's decision to retain the repo rate at 6.5% for the eighth consecutive time ensures economic stability amid global uncertainty and domestic inflation concerns. This stability supports the real estate market, making housing more affordable and boosting consumer confidence. It enables informed investment decisions, promoting sector growth and contributing to India's economic prosperity. With GDP growth projected at 7% in FY25 and inflation at 4.5%, the financial environment encourages long-term investments in housing. The recent Lok Sabha elections have further bolstered economic sentiment, enhancing investor confidence through political stability and consistent economic policies.

The next meeting of the MPC is scheduled during August 6 to 8, 2024.