RBI keeps lending rate untouched at 6.5 pc

Tribune News Service

Sandeep Dikshit

New Delhi, February 8

The Monetary Policy Committee (MPC) of the Reserve Bank of India on Thursday decided to keep the repo rate unchanged at 6.5 per cent for the sixth time in a row.

Setting out the rationale for not changing the prime lending rate for over a year, RBI Governor Shaktikanta Das said this was due to uncertainties in food prices, which could turn volatile and increase the inflation rate. Besides, there were concerns over global uncertainty.

Following the RBI’s decision to maintain status quo, banks and financial institutions will largely keep lending rates stable.

The RBI had last raised the repo rate in February 2023 to 6.5 per cent after six consecutive rate hikes aggregating to 250 basis points since May 2022.

Das noted that the first advance estimates placed the real gross domestic product (GDP) growth at 7.3 per cent for 2023-24, marking the third successive year of growth above 7 per cent.

In the next year (2024-25), he felt the agricultural activity was “holding up well” despite lower rainfall, lower reservoir levels and delayed sowing. Rabi sowing has surpassed last year’s level as well as the normal acreage. The allied sector is also expected to provide major support to agriculture with continued momentum in horticulture and fisheries, he observed, adding the real GDP growth for 2024-25 was projected at 7%. Expecting the prices of fruits and vegetables to correct, Das projected inflation at 5.4% for the current year (2023-24) with Q4 at 5 per cent. Assuming a normal monsoon next year, CPI inflation for 2024-25 is projected at 4.5 per cent with Q1 at 5 per cent; Q2 at 4 per cent; Q3 at 4.6 per cent; and Q4 at 4.7 per cent. “The risks are evenly balanced,” said the RBI Governor.

Industrial activity too is gaining steam on the back of improving performance of manufacturing and the early results of corporates in the manufacturing sector remain upbeat. The purchasing managers’ index (PMI) for manufacturing is displaying expansion along with strengthening of future activity index, he said. The services sector activity too was expected to remain resilient on the back of strong domestic demand and stable global prospects, he added.

MPC meet takeaways

• 7% GDP growth rate projected for FY25
• 5.4% inflation for current fiscal (2023-24)
• 4.5% inflation forecast for 2024-25

Bourses tumble 1%, bank stocks drag

• Sensex and Nifty tanked around 1% on Thursday dragged by selling in banking and auto shares
• This was due to increased uncertainty about timing of interest rate cuts after RBI’s monetary policy

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#Inflation #Reserve Bank of India RBI