RBI sets the repo rate at 6.5% and continues its hawkish stance

6 Oct 2023 , 01:37 PM

Shaktikanta Das, governor of the Reserve Bank of India (RBI), declared on Friday that the benchmark repo rate would remain at 6.5%, as predicted by economists, following a unanimous decision by the MPC.

The 6-member MPC has now decided to keep the main interest rates unchanged on four separate occasions.

‘Following a thorough analysis of the changing macroeconomic and financial trends and the outlook, the MPC unanimously decided to maintain the policy repo rate at 6%. As a result, the bank rate and marginal standing facility (MSF) rate are both 6.7%, according to Das. The standing deposit facility (SDF) rate is also 6.25%.

Five of the MPC’s six members, according to Das, have opted to continue concentrating on the removal of accommodation in order to ensure that inflation gradually converges with the objective while fostering growth.

According to Shaktikanta Das, who outlined the MPC’s justification for the policy stance, the overall inflation forecast is ‘clouded by the uncertainties’ caused by the decline in Kharif sowing for several important commodities like pulses and oil seeds, reduced reservoir levels, and fluctuating global food and energy prices.

The MPC noted that frequent occurrences of significant increases in food prices can cause headline inflation to become persistent and generalized.

The MPC chose to maintain the policy repo rate at 6.5%, Das said, ‘taking into account the evolving inflation growth dynamics and the cumulative policy repo rate hike of 250 basis points, which is still working through the economy.’

In order to align inflation with the target and anchor inflation expectations, he continued, ‘The MPC remains highly alert to implement timely policy measures, as may be necessary.’

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