RBI flags inflation risks, keeps interest rates unchanged

PTI

Mumbai, October 6

The RBI expectedly left its key interest rate unchanged on Friday as inflation remains a major risk, and signalled it would keep liquidity tight using bond sales to bring prices closer to target.

Key takeaways of monetary policy

• RBI retains benchmark rate (repo) at 6.5%
• GDP growth forecast retained at 6.5% for FY’24
• Inflation forecast too retained at 5.4% for FY’24
• Limit of gold loan under Bullet Repayment Scheme for urban cooperative banks doubled to Rs 4 lakh

The monetary policy committee, which has three members from the central bank and a similar number of external members, held the benchmark repurchase rate (repo) at 6.50% in a unanimous decision for the fourth consecutive meeting in a row. It retained 'withdrawal of accommodation' stance.

Governor Shaktikanta Das said the central bank has identified high inflation as a major risk to macroeconomic stability and sustainable growth and "remains resolutely focused on aligning inflation to the 4% target on a durable basis".

Don’t be complacent

The need of the hour is to remain vigilant and not give room to complacency. India is poised to become the new growth engine of the world.

Shaktikanta Das, RBI Governor

The incomplete transmission of past 250 basis-points rate hikes to bank lending and deposit rates reinforced MPC's imperative to continue its stance of withdrawal of accommodation, he said.

Despite the second quarter bulge in inflation, the RBI kept its inflation forecast for the current fiscal unchanged at 5.4%.

Annual retail inflation eased to 6.83% in August, from a 15-month high of 7.44% in July, but remained well above the central bank's 2-6% comfort band.

However, silver lining is drop in core inflation (retail inflation excluding food and fuel) to below 5%. Upping the ante against inflation, the central bank may consider selling bonds to soak up excess funds from the banking system, he said. "The timing and quantum of such operations will depend on the evolving liquidity conditions." The RBI kept its GDP forecast unchanged at 6.5% for the current fiscal.

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