Reserve Bank Of India Holds Key Interest Rate Steady At 6.5% For Seventh Time, Inflation Targets In Sight

  • Posted on April 05, 2024
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  • By Admin
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In its latest move, the Reserve Bank of India (RBI) opted to maintain its key lending rate at 6.5% for the seventh consecutive time. This decision was reached by a majority vote of 5:1 at the bi-monthly Monetary Policy Committee (MPC) meeting, according to RBI Governor Shaktikanta Das.

The central bank's decision to keep the repo rate unchanged implies that loan interest rates are also likely to remain stable. This comes after the RBI halted its rate increase cycle in April last year, following six consecutive rate hikes totaling 250 basis points since May 2022.

Governor Das highlighted that inflation is edging closer to targets, projecting retail inflation for the current year at 4.5%. The RBI's mandate from the government is to maintain retail inflation at 4%, with a 2% margin on either side.

Core inflation has been on a steady decline over the past nine months, while the fuel component has experienced deflation for six consecutive months, noted Mr. Das. He emphasized that robust growth prospects offer room for the policy to remain focused on inflation.

However, uncertainties in food prices persist, posing challenges. Mr. Das underlined that the MPC remains vigilant regarding potential upside risks to inflation that could disrupt the ongoing disinflation process. He cited, "Food inflation continues to exhibit considerable volatility which is impeding the ongoing disinflation process."

The RBI Governor also presented growth projections, indicating that India is expected to grow at 7% this financial year, with 7.1% growth anticipated in the April-June quarter and 6.9% in the July-September quarter. He emphasized that risks are evenly balanced.

Mr. Das highlighted the stability of the Indian rupee, stating it is the most stable among major currencies. He attributed this to sound macroeconomic fundamentals and the country's robust external position. Liquidity conditions in India have improved in March, while average borrowings under the marginal standing facility have moderated.

Moreover, India remains the largest receiver of remittances, with foreign portfolio investment witnessing a significant turnaround. The RBI Governor also noted that India's forex reserves have reached a record high. In a broader global context, Mr. Das remarked that the global economy has shown resilience, with global trade expected to grow faster in 2024.

The RBI's decision to maintain the key interest rate reflects its stance on balancing inflationary concerns with supporting economic growth amidst global economic dynamics.

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