RBI leaves key lending rate unchanged, but flags inflation concerns

iNDICA NEWS BUREAU–

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) in its October review meeting unanimously decided to keep the policy repo rate unchanged at 6.5 per cent, thus maintaining status quo for the fourth straight occasion. While deliberating the policy statement Friday morning, RBI Governor Shaktikanta Das said the central bank is concerned and it has identified high inflation as a major risk to macro-economic stability and sustainable growth.

Das added the monetary policy committee is committed to align India’s headline inflation at the 4 per cent level.

The governor noted that five of the six MPC members are for remaining focused on “withdrawal of accommodation” in monetary policy stance” so as to ensure the inflation progressively aligns with the target, while supporting growth.

The three-day bi-monthly MPC meeting was closely monitored by financial market participants.

RBI typically conducts six bi-monthly meetings in a financial year, where it deliberates interest rates, money supply, inflation outlook, and various macroeconomic indicators.

In its past three meetings — April, June, and August — the RBI held the repo rate unchanged at 6.5 per cent. The repo rate is the rate of interest at which RBI lends to other banks.

A relative decline in inflation, barring the latest spike, and its potential for further decline may have prompted the central bank to put the brake on the key interest rate.

Inflation has been a concern for many countries, including advanced economies such as the US, but India has largely managed to steer its inflation trajectory quite well.

Barring the latest third straight pause, 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.

Headline inflation in India rose to 7.8 per cent in July due to a surge in prices of food items like wheat, rice and vegetables, including tomatoes, to later fall to 6.8 per cent in August. Inflation data for September is due in next few days.

Related posts