RBI keeps policy rate unchanged, raises inflation concerns

Mumbai, October 6: In its October review meeting, the Reserve Bank of India's (RBI) monetary policy committee unanimously decided to maintain the policy repo rate at 6.5 per cent, marking the fourth consecutive time the rate has been kept unchanged.

During the policy statement discussion, RBI Governor Shaktikanta Das expressed concern about high inflation, identifying it as a significant risk to macroeconomic stability and sustainable growth. Das emphasised the committee's commitment to align India's headline inflation with the 4 percent target.

#WATCH | RBI Governor Shaktikanta Das says, "Domestic economic activity continues to be resilient. India is poised to become the new growth engine of the world...It's emphatically reiterated that the inflation target is 4 per cent and not 2 to 6 per cent. Hence, monetary policy… pic.twitter.com/w9hja9AAkc — ANI (@ANI) October 6, 2023

Governor Das noted that five out of the six MPC members support a focus on the "withdrawal of accommodation" in the monetary policy stance to ensure that inflation gradually aligns with the target while supporting economic growth.

The three-day bi-monthly monetary policy committee (MPC) meeting began on Wednesday, with financial markets closely monitoring the outcomes and policy stance for potential signals.

In its last three meetings in April, June, and August, the RBI held the repo rate steady at 6.5 percent. The repo rate represents the interest rate at which the RBI lends to other banks.

The RBI may have opted to maintain the key interest rate due to a relative decline in inflation, despite a recent spike. India has managed its inflation trajectory effectively compared to other countries, including advanced economies.

Apart from the most recent consecutive pause, the RBI had raised the repo rate by a total of 250 basis points since May 2022 in its efforts to combat inflation. Increasing interest rates is a monetary policy tool that typically helps reduce demand in the economy, thereby contributing to a decline in the inflation rate.

Headline inflation in India climbed to 7.8 per cent in July, primarily due to rising food prices, including wheat, rice, and vegetables such as tomatoes. However, it fell to 6.8 per cent in August. Data for September's inflation is expected in the coming days.

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- ANI

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