RBI keeps repo rate unchanged for the fourth time in a row

Mumbai: The Reserve Bank of India (RBI) has left its key interest rate unchanged, as inflation remains a major risk, and signalled it would keep liquidity tight using bond sales to bring prices closer to target, said RBI Governor Shaktikanta Das in a statement on Friday.

Despite the second quarter bulge in inflation, the RBI kept its inflation forecast for the current fiscal unchanged at 5.4 percent and the GDP growth at 6.5 percent.

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, the MPC decided to keep the policy repo rate unchanged at 6.50 percent in this meeting. The incomplete transmission of past 250 basis-points rate hikes to bank lending and deposit rates reinforced MPC's imperative to continue its stance of withdrawal of accommodation, said the governor in a statement.

'High inflation major risk to macroeconomic stability, growth'

The panel has identified high inflation as a major risk to macroeconomic stability and sustainable growth and "remains resolutely focused on aligning inflation to the 4 percent target on a durable basis".

Stating that the RBI will play its shots carefully, he said, "Going forward, while remaining nimble, we may have to consider OMO-sales (Open Market Operation sales) to manage liquidity, consistent with the stance of monetary policy. The timing and quantum of such operations will depend on the evolving liquidity conditions."

The measures announced on October 6 included doubling of limit for gold loans under the bullet repayment scheme to Rs 4 lakh in respect of urban cooperative banks.

The RBI governor said, announcement of the hike in incremental cash reserve ratio (I-CRR) to 10 percent on the incremental NDTL (net demand and time liabilities), which impounded about Rs 1.1 lakh crore from the banking system, will end on October 7.

RBI's inflation target is 4 percent and not 2 to 6 percent

He also mentioned that RBI's inflation target is 4 percent and not 2 to 6 percent. "Our aim is to align inflation to the target on a durable basis, while supporting growth." Commenting on the RBI's monetary policy decision, Prasenjit Basu, Chief Economist, ICICI Securities, said "We continue to expect the next policy move to be a rate cut in Q1FY25.

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