RBI to maintain vigilant policy stance

The Reserve Bank of India (RBI) is poised to maintain its vigilant policy stance, considering the resilient economic growth and well-managed inflation. 

With expectations of a sustained pause in the short-term key lending rate, driven by robust GDP growth and controlled inflation, the last adjustment occurred in February, concluding a series of interest rate hikes initiated in May 2022. These measures were in response to the repercussions of the Russia-Ukraine conflict and disruptions in the global supply chain, resulting in heightened inflation in India.

In the October meeting, the Reserve Bank of India (RBI) kept the policy repo rate steady at 6.5 per cent, aligning with market predictions. Policymakers aim to harmonise inflation within the RBI's tolerance range of 4 per cent ± 2 per cent while fostering economic growth. 

India's annual inflation (CPI) moderated to 6.83 per cent in August from a 15-month high in July, primarily attributed to decreasing food prices.

Despite an anticipated decline in September, the RBI remains committed to steering inflation towards the 4 per cent midpoint of the target band. 

RBI Governor Shaktikanta Das stressed upon the ongoing focus on addressing uncertainties related to food prices. The RBI maintained its fiscal year 2024 forecasts for economic growth (6.5 per cent) and headline inflation (5.4 per cent), while adjusting core inflation downward to 4.9 per cent.

The benchmark interest rate currently holds at 6.50 per cent, with expectations of remaining at this level by the end of the quarter. 

Looking ahead, projections hint at a potential decrease to 5.50 per cent in 2024 and 5.00 per cent in 2025. The RBI left the marginal standing facility (MSF) and bank rates unchanged at 6.75 per cent, alongside the standing deposit facility (SDF) rate at 6.25 per cent.

“Domestically, all eyes will be on the RBI policy outcome that is scheduled on Friday. Its commentary would hold importance with regards to interest rate movement, said Siddhartha Khemka, Head of Retail Research, Motilal Oswal Financial Services.

India’s G20 Sherpa, Amitabh Kant, during the third edition of Republic Business’ India Economic Summit in New Delhi, said that India’s growth will further accelerate to 9 per cent.