The Reserve Bank of India (RBI) recently announced its decision to keep its key interest rate unchanged at 6.50%. This move was widely expected and is part of the RBI’s ongoing efforts to bring inflation down amidst global market volatility. The Monetary Policy Committee (MPC), consisting of both RBI and external members, voted in favor of maintaining the current repo rate for the ninth consecutive policy meeting.
RBI Governor Shaktikanta Das emphasized the importance of staying the course in bringing inflation down towards the target of 4%. Despite resilient economic growth, India’s food inflation remains high, making it crucial for monetary policy to prioritize price stability. The decision to retain the policy rate and stance aligns with the MPC’s objective of achieving sustainable growth while keeping inflation in check.
Following the RBI’s decision, Indian shares experienced a decline, with the NSE Nifty 50 index and the S&P BSE Sensex both dropping by 0.4%. The 10-year benchmark bond yield saw a slight increase, while the Indian rupee remained relatively stable against the dollar. Investors had hoped for a more dovish stance from the RBI in light of global market uncertainties and expectations of interest rate cuts by major central banks.
RBI Governor Das acknowledged the challenges posed by global market volatility and the trend towards rate cuts by central banks worldwide. Despite these external factors, the RBI maintained its focus on domestic considerations, signaling that India’s monetary policy trajectory remains unchanged. The governor’s policy statement underscored the importance of prioritizing domestic economic stability over external influences.
The RBI kept its growth forecast for fiscal 2025 at 7.2%, slightly lower than the previous fiscal year’s expansion of 8.2%. Domestic economic activity was described as resilient, supporting the central bank’s optimistic growth outlook. Inflation forecasts were also retained at 4.5% for the current year, despite a slight uptick in retail inflation rate in June. The RBI’s projections reflect confidence in the economy’s ability to weather global headwinds.
The RBI’s decision to maintain interest rates underscores its commitment to balancing growth and inflation objectives amid global uncertainties. By prioritizing domestic considerations and upholding a cautious stance, the central bank aims to safeguard India’s economic stability and pave the way for sustainable growth in the future.