Key interest rate intact at 6.5% amid food price volatility fears

Tribune News Service

Sandeep Dikshit

New Delhi, April 5

The Reserve Bank of India’s monetary policy committee (MPC) kept the interest rates unchanged at its last meeting before the General Election. The announcement left the industry disappointed but RBI Governor Shaktikanta Das said the decision not to change the repo rate from 6.5 per cent for the seventh consecutive time was because of concerns over the volatility in food price inflation.

Forex reserves hit record $645.58 bn

India’s foreign exchange reserves have jumped $2.951 billion to record $645.583 billion for week ended March 29. This is the sixth consecutive week of a jump in overall reserves. The earlier high was recorded in September 2021, when reserves hit $642.453 billion.

Trading of green bonds at IFSC soon

• RBI to allow investment, trading of sovereign green bonds at International Financial Services Centre (IFSC)
• Will launch app for retail investors to participate in govt securities (G-Secs) or government bonds market
• Will soon facilitate cash deposit facility in banks through use of unified payments interface (UPI)

Need to Watch out for heatwave impact

Wheat is not much of a concern. But veggie prices have to be watched and any other impact heatwave may produce Shaktikanta Das, RBI Governor

The RBI has projected India’s real GDP growth rate for 2024-25 at 7 per cent and retail inflation for the period at 4.5 per cent. The quarterly growth projections for this fiscal are Q1 at 7.1 per cent, Q2 at 6.9 per cent, Q3 at 7 per cent and Q4 at 7 per cent.

The MPC kept the rates unchanged by a majority of five to one. The RBI had last changed the rates in February last year. Inflation is now hovering around five per cent, which is within the RBI’s upper tolerance limit. However, the RBI says it is committed to bringing down the inflation rate to four per cent, considered ideal for stable growth in the economy. The RBI’s confidence is also due to the stunning growth rate of 8.6 per cent in the October-December quarter of 2023-24 and projection of 8 per cent growth rate in the final quarter of the current fiscal.

Das said macroeconomic fundamentals had strengthened due to a firm check on fiscal deficit and vigorous tax collections. The RBI chief also drew attention to foreign exchange reserves hitting a two-year high of $645.58 billion for the week ended March 29, and said: “It is our prime focus to build a strong umbrella, a strong buffer in the form of a substantial quantum of forex reserves, which will help us when the cycle turns or when it rains heavily.”

Das announced a scheme for trading of sovereign green bonds at the International Financial Services Centre (IFSC) and introduction of a mobile app to access RBI’s retail direct scheme for participation in the Government Securities (G-Secs) market.

Analyst Amit Goel said the likelihood of an immediate rate cut is diminishing, possibly because of an impending heat wave. “We expect the RBI to begin an easing cycle in August. But the longer it keeps rates elevated, the greater the risk that the economy will fail to realise its higher growth potential.”

Another analyst Saurav Ghosh said the unchanged repo rate was good for the broader industry as it would add stability and predictability. “Though, the uncertainties around geopolitical risk, volatility around food prices and crude need to be monitored as these continue to pose challenges and may derail the path to disinflation,” said analyst Nish Bhatt.

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