RBI Maintains Status Quo, Keeps Key Policy Rate Unchanged at 6.5 Percent

Newseense February 8, 2024

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RBI Maintains Status Quo, Keeps Key Policy Rate Unchanged at 6.5 Percent

Governor Das Emphasizes Inflation Concerns and Strong Domestic Activity Momentum

In its Monetary Policy Committee (MPC) meeting held on February 8, the Reserve Bank of India (RBI) announced its decision to keep the key policy rate unchanged at 6.5 percent, marking the sixth consecutive time the central bank has maintained a status quo.

In the briefing following the MPC meeting, Governor Shaktikanta Das highlighted the persisting uncertainty in food prices, impacting headline inflation. Despite this, he noted that the momentum in domestic activities remains robust. Emphasizing the need for an actively dis-inflationary monetary policy, Das stated the importance of addressing inflation concerns while supporting domestic economic activities.

Out of the six MPC members, five voted in favor of maintaining the current policy rate. In the last meeting on December 8, the central bank had kept the repo rate unchanged for the fifth consecutive time. Governor Das had revised the growth projection for the current financial year to 7 percent from the earlier estimate of 6.5 percent.

Despite a decline in retail inflation from its peak of 7.44 percent in July 2023, it stood at 5.69 percent in December 2023, within the RBI’s comfort zone of 4-6 percent.

In the previous month, Governor Das expressed optimism about the Indian economy, projecting a growth rate of 7 percent in the next financial year. He also anticipated a further easing of inflation. Das credited the government for structural reforms undertaken in recent years, stating that these reforms have positively impacted the medium and long-term growth prospects of the Indian economy.

While acknowledging improved chances of a soft landing and positive market reactions, Governor Das highlighted ongoing concerns related to geopolitical risks and climate risks.

During her interim budget address to parliament, Finance Minister Nirmala Sitharaman outlined plans to sharply reduce India’s budget gap in fiscal year 2024-25. She emphasized a focus on infrastructure and long-term reforms to drive economic growth in the coming fiscal year.

As India navigates economic challenges, the RBI’s decision to maintain the status quo reflects a strategic approach to balance inflation concerns and sustain domestic economic momentum. The government’s commitment to fiscal responsibility and infrastructure development aligns with broader efforts to stimulate growth.

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