RBI Holds Repo Rate Steady at 6.5 percent Governor Shaktikanta Das Emphasizes Need to Control Inflation

RBI Holds Repo Rate Steady at 6.5%, Governor Shaktikanta Das Emphasizes Need to Control Inflation

In its October 9 meeting, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 6.5% for the tenth consecutive time. RBI Governor Shaktikanta Das stressed the importance of keeping inflation in check, stating that inflation must be kept "on a tight leash."

The MPC, chaired by Das, began its three-day deliberations on October 7, focusing on crucial issues such as inflationary pressures, global oil prices, and India's growth outlook. This meeting was the first to take place under the newly appointed external members of the MPC, who joined the panel last week. Economists Saugata Bhattacharya, Dr. Nagesh Kumar, and Ram Singh replaced the outgoing members and bring strong academic and financial expertise to the team. These new appointments mark a significant shift for the RBI’s decision-making body as they weigh in on key policy areas.

Key Issues Discussed in the MPC Meeting

The RBI’s MPC meeting, the fourth of the 2024-25 fiscal year, was held amid heightened concerns over inflation and global market volatility. Das and his team discussed factors like rising crude oil prices, food inflation, and geopolitical tensions in West Asia, which have been driving up costs and impacting growth projections.

Analysts had predicted that the central bank would adopt a cautious approach in its policy announcement, with many expecting no change in the interest rates for now. However, a few experts, including Nomura's Sonal Verma, predicted that a rate-cutting cycle could begin as early as October if food inflation stabilizes. HDFC Bank echoed similar sentiments, suggesting that policy accommodations could be on the horizon if inflation is brought under control.

In previous meetings this fiscal year—held in April, June, and August—the RBI maintained its ‘withdrawal of accommodation’ stance, meaning the central bank has been less inclined toward interest rate cuts due to the inflationary environment. Despite expectations of temporary inflationary pressures, the MPC had lowered the GDP growth forecast for the first quarter of FY24 from 7.3% to 7.1%, citing weaker corporate profitability and reduced government expenditure.

Governor Das has so far resisted calls for rate cuts, particularly from external members like Jayanth Varma and Ashima Goyal, who had pushed for a 25-basis-point reduction and a shift to a neutral stance. Das remains concerned that persistent high food prices will prevent inflation from stabilizing at the RBI’s 4% target in a sustainable manner.

Global Factors Adding Pressure on the RBI

Although inflationary concerns are a significant factor for the MPC's stance, global economic factors also play a role in the RBI's decision-making process. Central banks across the globe, including the US Federal Reserve, are beginning to pivot toward rate cuts. This puts added pressure on India’s central bank to follow suit, especially after a strong monsoon season and a forecast of a bumper harvest.

Next Steps and Key Dates

As part of its regular bi-monthly reviews, the MPC is scheduled to meet again in December and February. The current decision will be formally announced by Governor Das at 10 a.m. on October 9, followed by a press conference at noon. Both events will be live-streamed across RBI’s official social media platforms, including YouTube, Facebook, and X (formerly Twitter).