iNDICA NEWS BUREAU–
The Monetary Policy Committee of the Reserve Bank of India (RBI) in its February review meeting on Thursday (India time) unanimously decided to keep the policy repo rate unchanged at 6.5 per cent, thus maintaining status quo for the sixth straight time. The repo rate is the rate of interest at which RBI lends to other banks.
Deliberating the policy statement on Friday morning after a three-day review meeting, RBI Governor Shaktikanta Das attributed comfortable inflation and firm growth dynamics as the reasons behind maintaining the status quo the policy stance.
Das said inflation is moving closer to the target and growth is holding better than expected. Retail inflation in India though, is in RBI’s 2-6 per cent comfort level but is above the ideal 4 per cent scenario. In December, it was 5.69 per cent
Das said the MPC also decided by a majority of 5 out of 6 members to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.
The Indian economy grew 7.6 per cent during the July-September quarter of the current financial year 2023-24, remaining the fastest-growing major economy. India’s GDP growth for the April-June quarter grew 7.8 per cent.
The three-day bi-monthly monetary policy committee (MPC) meeting of the RBI began on Tuesday. The RBI typically conducts six bimonthly meetings in a financial year, where it deliberates interest rates, money supply, inflation outlook, and various macroeconomic indicators.
A considerable decline in inflation, and its potential for further decline may have prompted the central bank to put the brake on the key interest rate again. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well.
Barring the latest pauses, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
The benchmark BSE Sensex tanked more than 600 points after RBI announcement of credit policy with banks leading the fall.
Sensex was trading at 71,523.08 points down by a massive 628.92 points or 0.87 per cent. The NSE Nifty was trading at 21,782, down 148 points or 0.66%.
Axis Bank, ICICI Bank, Nestlé were down more than 2 per cent. The private banks index fell more than 1.5 per cent. Au Bank and Kotak Mahindra Bank were down 2 per cent.
FMCG stocks were down with the index falling 1.2 per cent. Tata Consumer fell 2 per cent, while Britannia went down by 2 per cent and Jyothy Labs by 3 per cent.
Suman Chowdhury, Chief Economist and Head-Research, Acuité Ratings & Research said it was no surprise that RBI MPC decided to keep the status quo on the interest rates for the sixth consecutive time. However, RBI continued to sound hawkish as against the market expectations and has not provided any indication of the timing of the change in monetary stance from “withdrawal of accommodation”.
Chowdhury said given the tone of the MPC statement and the expectation of growth buoyancy, we believe that the likelihood of any rate cut by RBI has significantly reduced over the next six months.
“In our opinion, the short term rates will continue to remain high in the near term. We also expect bank deposit rates to show an increase by 25-50 bps, given the continuing gap between credit and deposit growth,” said Chowdhury.
