- The Reserve Bank of India kept the repo rate unchanged at 5.25 per cent
- The RBI's monetary policy committee meeting lasted three days before the decision
- The decision to maintain the repo rate was taken unanimously by the committee
RBI MPC Meeting: Following the three-day monetary policy committee meeting, the Reserve Bank of India (RBI) kept the repo rate unchanged at 5.25 per cent. The decision to maintain a "neutral stance" was taken unanimously.
The RBI had also retained the Standing Deposit Facility (SDF) rate at 5 per cent, while keeping the Marginal Standing Facility (MSF) rate and the bank rate unchanged at 5.5 per cent.
Announcing the policy decision, RBI governor Sanjay Malhotra underlined high crude oil prices amid the ongoing Iran war. He added that the headline inflation has shot up as per expectations.
However, FY27 retail inflation estimate has been reduced from 5.1 per cent earlier to 5 per cent. Similarly, the RBI has raised FY27 real GDP projection from 6.6 per cent to 6.7 per cent.
RBI Governor Sanjay Malhotra On Growth:-
"Growth, although resilient, is expected to be lower in this financial year. The outlook, however, is hazy because of the uncertainties regarding South's global trade policy. There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action."
RBI Governor Sanjay Malhotra On Inflation:-
"Realised inflation in the first quarter remained marginally lower than projections, reflecting the limited pass-through of cost pressures... Headline inflation is projected to increase, primarily due to supply-side pressures from food and fuel, while core inflation remains moderate and is expected to decline after peaking in Q3... Excluding precious metals, underlying inflation continues to remain benign and is in line with earlier projections."
RBI Governor Sanjay Malhotra On Impact Of Iran War:-
"The re-escalation of the (Iran) conflict since the first week of July has amplified volatility in energy prices. Early results of corporates for Q1 indicate healthy performance in the manufacturing sector... Private consumption continued to be driven by buoyant discretionary spending. Overall, the Indian economy performed better than expected in Q1."
RBI Governor Sanjay Malhotra On Monsoon:-
"The impact of El Nino on the temporal and spatial distribution of rainfall remains a major risk. Global oil prices have also remained highly volatile, with sharp two-way movements triggered by geopolitical developments, blurring the near-term inflation outlook... While generalised inflation pressures remain modest so far, the risk of second-round effects from higher food, fuel and other input costs translating into broader-based inflation persists."
Why RBI Kept Repo Rate Unchanged
Analysing RBI's policy decision, Vivek Iyer, Partner and Financial Services Risk Advisory, Grant Thornton Bharat, said, "The RBI interest rate as widely expected stays unchanged. Benign core inflation combined with marginally higher headline inflation and anchored inflation expectations, resulted in the decision. It's a tight rope walk between growth and stability that the RBI has done again with dexterity."
Iyer added, "Food and fuel inflation continue to be a variable that will be closely watched, given agricultural dependencies on climate factors and external supply chain challenges from a energy security standpoint. Government focus on fiscal policy on these two variables, helps the RBI to focus on growth through monetary policy."
He further said, "Any key rate decision is dependent on three factors - core inflation, headline inflation and inflation expectations. The interplay of these three factors is what determines RBIs decision on interest rates. Benign core inflation and anchored inflation expectations despite a rise in headline inflation , is what resulted in an unchanged interest rate. The fact that there is increase in food and fuel inflation means that the RBI will need to continue to watch these factors and hence the stance is neutral."
