RBI Monetary Policy: Governor Shaktikanta Das Keeps Repo Rate Steady at 6.5%

Overview of the Monetary Policy Announcement

In a widely anticipated move, the Reserve Bank of India (RBI) maintained the repo rate at 6.5% for the eighth consecutive time. Governor Shaktikanta Das emphasized the central bank's steadfast commitment to achieving the 4% medium-term inflation target while navigating a favorable inflation-growth balance.

Decision Details

The Monetary Policy Committee (MPC) of the RBI, consisting of six members, saw four members voting to maintain the repo rate at 6.5%. The committee also retained its stance of ‘withdrawal of accommodation,’ a position it has held consistently since February 2023. Notably, this decision marks a shift from earlier in the year when only one member had opposed the status quo on rates and policy stance.

Economic Growth and Inflation Projections

The MPC revised its growth projection for the fiscal year 2025 (FY25) from an earlier estimate of 7% to 7.2%. This adjustment reflects a positive economic outlook, underpinned by robust growth data from FY24, where the Indian economy expanded by a remarkable 8.2%, including a strong 7.8% growth in the January-March quarter.

Regarding inflation, the RBI maintained its forecast, projecting retail inflation to average 4.5% for the fiscal year ending March 2025. Quarterly estimates are set at 4.9% for Q1, 3.8% for Q2, 4.6% for Q3, and 4.5% for Q4. Although annual retail inflation slightly eased to 4.83% in April from 4.85% in March, it remains above the MPC’s target.

Independence from Global Monetary Policies

Governor Das highlighted the MPC’s independent approach, stating that their decisions will not be influenced by the US Federal Reserve’s policy actions. “While we do keep a watch on whether clouds are building up or clearing out, we play according to local weather and pitch conditions. Our actions are primarily dependent on domestic growth and inflation outlook,” he asserted. This underscores the RBI's focus on the domestic economic environment rather than external factors.

Market Reactions and Expectations

Market analysts had largely predicted that the RBI would keep the repo rate unchanged. Consequently, Indian stock market indices, including the Sensex and Nifty 50, opened flat ahead of the announcement, reflecting the market’s expectation of a ‘non-event’ from the central bank’s policy update.

In Conclusion, The RBI’s decision to keep the repo rate steady at 6.5% underscores its commitment to balancing inflation and growth while prioritizing domestic economic conditions over global influences. As the Indian economy continues to demonstrate robust growth, the central bank remains vigilant in managing inflation and ensuring economic stability. Investors and market participants are likely to keep a close eye on future MPC meetings for any changes in policy stance or economic projections.