Monetary Policy Committee Meeting: RBI keeps repo rate unchanged at 6.5%; FY24 GDP growth estimate maintained at 6.5%

RBI MPC meet decision: In line with expectations, the monetary policy committee (MPC) of the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5 per cent, in its second bi-monthly monetary policy of fiscal 2023–24, which was held between June 6 and 8. The MPC members unanimously decided to maintain the status quo on the repo rate, Governor Shaktikanta Das said in his policy speech on June 8.

The repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. 

Further, the MSF rate remains unchanged at 6.75 per cent, while the bank rate also stands steady at 6.75 per cent. Besides, the RBI has lowered the headline (CPI) inflation forecast for Q1 and Q2, while the estimates for Q3 and Q4 are maintained. Overall for FY24, inflation is seen at 5.1 per cent, Das said in his speech. As regards stance, the governor said that the MPC voted by a 5:1 majority to maintain the 'Withdrawal of Accommodation' stance. "Dr Shashanka Bhide, Dr Ashima Goyal, Dr Rajiv Ranjan, Dr Michael Debabrata Patra, and Shri Shaktikanta Das voted to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target while supporting growth. "Professor Jayanth R. Varma expressed reservations on this part of the resolution," the policy statement read.

Moreover, the GDP growth estimate for FY24 is maintained at 6.50 per cent, the governor added.

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RBI on inflation

The headline CPI inflation rate has come down during March-April 2023 to 4.7 per cent in April, the lowest reading since November 2021. Monetary policy tightening and supply-side measures contributed to this process. The easing of inflation was observed across food, fuel, and core (CPI excluding food and fuel) categories. Food inflation declined to 4.2 per cent in April, while core inflation moderated to 5.1 per cent. A durable disinflation in the core component would be critical for a sustained alignment of the headline inflation with the target, the statement read.

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Further, it said that geopolitical tensions, uncertainties around the monsoon and international commodity prices, especially sugar, rice, and crude oil; and volatility in global financial markets pose upside risks to inflation. Taking into account these factors and assuming a normal monsoon, CPI inflation is projected at 5.1 per cent for 2023–24, with Q1 at 4.6 per cent, Q2 at 5.2 per cent, Q3 at 5.4 per cent and Q4 at 5.2 per cent.

Commenting on the policy decision, Ritika Chhabra, Quant Macro Strategist, Prabhudas Lilladher PMS, said, "There were no surprises on the policy front as we were expecting RBI to hold the rates at 6.5 per cent. The central bank kept its stance unchanged at 'withdrawal of accommodation' as it maintains its focus on inflation, citing delay in the monsoon, El Nino impact, and geopolitical uncertainties as upside risks to inflation. We expect FY24 inflation to be 4.9 per cent slightly lower than the RBI's estimate of 5.1 per cent, as the base effect turns favourable and imported inflation eases."

GDP growth forecast

Weak external demand, geoeconomic fragmentation, and protracted geopolitical tensions pose risks to the economic outlook, the RBI said. Taking all these factors into consideration, real GDP growth for 2023-24 is projected 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 evenly balanced, the statement read.